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CZR Caesars Entertainment

Filed: 26 Feb 18, 7:00pm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑K

(Mark One)

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

For the fiscal year ended December 31, 2017

OR

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

For the transition period           to           

Commission File No. 001‑36629

ELDORADO RESORTS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

46‑3657681

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

100 West Liberty Street, Suite 1150

Reno, Nevada 89501

(Address of principal executive offices)

Telephone: (775) 328‑0100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

 

Title of each class

 

Name of each exchange on which registered

 

 

Common Stock, $.00001, par value

 

NASDAQ Stock Market

 

 

Securities registered pursuant to section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes      No  

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§299.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

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

 

Large accelerated filer 

 

Accelerated filer 

Non‑accelerated filer 

(Do not check if a smaller reporting company)

Smaller reporting company 

Emerging growth company

 

 

 

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

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

The aggregate market value of the common stock held by non-affiliates of the Registrant was $1.3 billion at June 30, 2017 based upon the closing price for the shares of ERI’s common stock as reported by The Nasdaq Stock Market.

As of February 23, 2018, there were 77,241,115 outstanding shares of the Registrant’s Common Stock.

Documents Incorporated by Reference

Portions of the Registrant’s definitive proxy statement to be filed with the Commission pursuant to Regulation 14A in connection with the Registrant’s Annual Meeting of Stockholders (the “Proxy Statement”) are incorporated by reference into Part III of this report.  Such Proxy Statement will be filed with the Commission not later than 120 days after the conclusion of the Registrant’s fiscal year ended December 31, 2017.

 


 

 

 

 

 


 

ELDORADO RESORTS, INC.

ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2017

TABLE OF CONTENTS

 

Part I

 

 

 

 

 

 

 

Item 1.

 

Business

1

 

 

 

 

Item 1A.

 

Risk Factors

10

 

 

 

 

Item 1B.

 

Unresolved Staff Comments

21

 

 

 

 

Item 2.

 

Properties

21

 

 

 

 

Item 3.

 

Legal Proceedings

22

 

 

 

 

Item 4.

 

Mine Safety Disclosures

22

 

 

 

 

Part II

 

 

 

 

 

 

 

Item 5.

 

Market for Registrants’ Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

23

 

 

 

 

Item 6.

 

Selected Financial Data

24

 

 

 

 

Item 7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

 

 

 

 

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

50

 

 

 

 

Item 8.

 

Financial Statements and Supplementary Data

51

 

 

 

 

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

51

 

 

 

 

Item 9A.

 

Controls and Procedures

51

 

 

 

 

Item 9B.

 

Other Information

55

 

 

 

 

Part III

 

 

 

 

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

56

 

 

 

 

Item 11.

 

Executive Compensation

56

 

 

 

 

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

56

 

 

 

 

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

56

 

 

 

 

Item 14.

 

Principal Accounting Fees and Services

56

 

 

 

 

Part IV

 

 

 

 

 

 

 

Item 15.

 

Financial Statement Schedules

57

 

 

EXHIBITS

58

 

 

SIGNATURES

63

 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF ELDORADO RESORTS, INC.

64

 

 

 

i


 

PART I

Item 1.  Business.

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

Overview

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

We were founded in 1973 by the Carano Family with the opening of the Eldorado Hotel Casino in Reno, Nevada. In 1993, we partnered with MGM Resorts International on the Silver Legacy Resort Casino, the first mega-themed resort in Reno. In 2005, we acquired our first property outside of Reno when we acquired a casino in Shreveport, Louisiana, now known as Eldorado Shreveport. In September 2014, we merged with MTR Gaming Group, Inc. (“MTR Merger”) and acquired its three gaming and racing facilities in Ohio, Pennsylvania and West Virginia. The following year, in November 2015, we acquired Circus Circus Reno and the 50% membership interest in the Silver Legacy that was owned by MGM Resorts International (the “Circus Reno/Silver Legacy Purchase” or the “Reno Acquisition”).

On May 1, 2017, we completed our most recent – and largest - acquisition to date when we acquired Isle of Capri Casinos, Inc. (“Isle” or “Isle of Capri”), adding another 13 gaming properties to our portfolio (the “Isle Acquisition” or the “Isle Merger”).

Properties

As of December 31, 2017, we owned and operated approximately 950,000 square feet of casino space with approximately 21,000 slot machines and VLTs, approximately 600 table and poker games and over 7,000 hotel rooms.

We view each operating property as an operating unit. Prior to our acquisition of Isle, we aggregated our properties into three reportable business segments: (i) Nevada, (ii) Louisiana and (iii) Eastern. Following our acquisition of Isle, we aggregated our properties into four reportable business segments: (i) West, (ii) Midwest, (iii) South and (iv) East. For further financial information related to our segments as of and for the three years ended December 31, 2017, see Note 18, Segment Information, to our consolidated financial statements presented in Part IV, Item 15.

1


 

The following table sets forth certain information regarding our properties (listed by the segment in which each such property is reported) as of and for the year ended December 31, 2017:

 

 

 

Year

Opened

 

Year

Acquired

 

Slot

Machines

and VLTs

 

 

Table and

Poker Games

 

 

Hotel

Rooms

 

 

Restaurants

 

 

Bars

 

 

Casino Sq. Footage

 

 

Hotel

Occupancy (1)

 

 

Average

Daily Rate (1)

 

West Region:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eldorado Reno

 

1973

 

N/A

 

 

1,125

 

 

 

46

 

 

 

814

 

 

 

10

 

 

 

18

 

 

 

71,500

 

 

 

73.7

%

 

$

 

100.55

 

Silver Legacy

 

1995

 

2015

 

 

1,187

 

 

 

76

 

 

 

1,711

 

 

 

7

 

 

 

14

 

 

 

92,400

 

 

 

61.2

%

 

$

 

101.00

 

Circus Reno

 

1978

 

2015

 

 

712

 

 

 

24

 

 

 

1,571

 

 

 

7

 

 

 

4

 

 

 

65,515

 

 

 

54.2

%

 

$

 

82.72

 

Isle Black Hawk (2)

 

1998

 

2017

 

 

1,026

 

 

 

36

 

 

 

402

 

 

 

3

 

 

 

2

 

 

 

27,811

 

 

 

85.0

%

 

$

 

61.99

 

Lady Luck Black Hawk (2)

 

2003

 

2017

 

 

452

 

 

 

15

 

 

N/A

 

 

 

2

 

 

 

2

 

 

 

17,614

 

 

N/A

 

 

$

N/A

 

Midwest Region:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Waterloo

 

2007

 

2017

 

 

940

 

 

 

25

 

 

 

194

 

 

 

3

 

 

 

1

 

 

 

40,286

 

 

 

71.6

%

 

$

 

66.56

 

Bettendorf

 

2000

 

2017

 

 

978

 

 

 

20

 

 

 

509

 

 

 

3

 

 

 

1

 

 

 

36,659

 

 

 

56.1

%

 

$

 

59.20

 

Boonville

 

2001

 

2017

 

 

893

 

 

 

20

 

 

 

140

 

 

 

3

 

 

 

1

 

 

 

28,000

 

 

 

83.4

%

 

$

 

69.50

 

Cape Girardeau

 

2012

 

2017

 

 

872

 

 

 

24

 

 

N/A

 

 

 

4

 

 

 

2

 

 

 

41,536

 

 

N/A

 

 

 

N/A

 

Caruthersville

 

2007

 

2017

 

 

516

 

 

 

9

 

 

N/A

 

 

 

2

 

 

 

1

 

 

 

23,816

 

 

N/A

 

 

 

N/A

 

Kansas City

 

2000

 

2017

 

 

966

 

 

 

18

 

 

N/A

 

 

 

4

 

 

 

1

 

 

 

39,788

 

 

N/A

 

 

 

N/A

 

South Region:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pompano

 

1995

 

2017

 

 

1,455

 

 

 

45

 

 

N/A

 

 

 

6

 

 

 

4

 

 

 

45,000

 

 

N/A

 

 

 

N/A

 

Eldorado Shreveport

 

2000

 

2005

 

 

1,397

 

 

 

60

 

 

 

403

 

 

 

4

 

 

 

2

 

 

 

59,000

 

 

 

81.7

%

 

$

 

67.02

 

Lula

 

2000

 

2017

 

 

875

 

 

 

20

 

 

 

486

 

 

 

3

 

 

 

2

 

 

 

56,985

 

 

 

24.7

%

 

$

 

37.59

 

Vicksburg

 

1993

 

2017

 

 

616

 

 

 

9

 

 

 

89

 

 

 

3

 

 

 

1

 

 

 

25,000

 

 

 

45.9

%

 

$

 

62.38

 

Lake Charles

 

1995

 

2017

 

 

1,173

 

 

 

47

 

 

 

493

 

 

 

3

 

 

 

1

 

 

 

26,248

 

 

 

71.4

%

 

$

 

62.43

 

East Region:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Presque Isle Downs

 

2007

 

2014

 

 

1,593

 

 

 

40

 

 

N/A

 

 

 

5

 

 

 

4

 

 

 

59,355

 

 

N/A

 

 

 

N/A

 

Nemacolin

 

2013

 

2017

 

 

600

 

 

 

28

 

 

N/A

 

 

 

1

 

 

 

1

 

 

 

31,000

 

 

N/A

 

 

 

N/A

 

Scioto Downs

 

2012

 

2014

 

 

2,245

 

 

N/A

 

 

N/A

 

 

 

6

 

 

 

8

 

 

 

83,000

 

 

N/A

 

 

 

N/A

 

Mountaineer

 

1992

 

2014

 

 

1,508

 

 

 

36

 

 

 

357

 

 

 

5

 

 

 

7

 

 

 

79,380

 

 

 

73.1

%

 

$

 

49.34

 

(1)

Hotel occupancy and average daily rate figures are for the period beginning May 1, 2017 and ending December 31, 2017 for properties acquired in the Isle Acquisition.

(2)

Hotel occupancy and average daily rate for Isle Black Hawk and Lady Luck Black Hawk are presented on a combined basis.

West Region

The West segment consists of five properties that are located in Nevada and Colorado. Three of the properties are located in Reno, Nevada and two are located in Black Hawk, Colorado. Reno is located at the base of the Sierra Nevada Mountains along Interstate 80, approximately 135 miles east of Sacramento, California and 225 miles east of San Francisco, California. Reno, along with nearby Lake Tahoe, is a destination market that attracts year-round visitation by offering gaming, numerous summer and winter recreational activities and popular special events. The Eldorado Reno, Silver Legacy and Circus Reno properties (the “Reno Tri-Properties”) are connected in a “seamless” manner by enclosed, climate controlled skywalks. We believe that the centralized location and critical mass of these three properties, together with the ease of access between the facilities, provide significant advantages over the freestanding hotel/casinos in the Reno market. Of the 31 casinos currently operating in the Reno market, we believe we compete principally with four other hotel‑casinos that each generate at least $36 million in annual gaming revenues. We also compete with Native American tribes, including casinos located in northern California, which we consider to be a significant target market.

Black Hawk is located approximately 40 miles east of the Denver, Colorado metropolitan area which serves as Black Hawk’s primary feeder market. Our two Black Hawk properties are connected via sky bridges. When casinos having multiple gaming licenses in the same building are combined, the Black Hawk/Central City market consists of 21 gaming facilities (five of which have more than 500 slot machines).

2


 

Eldorado Reno

Eldorado Reno is a premier hotel, casino and entertainment facility. The interior of the hotel is designed to create a European ambiance where hotel guests enjoy panoramic views of Reno’s skyline and the majestic Sierra Nevada mountain range. Eldorado Reno is centrally located in downtown Reno, Nevada.

Silver Legacy

Silver Legacy is the tallest building in northern Nevada consisting of 37-, 34- and 31-floor tiers. Silver Legacy’s opulent interior showcases a casino built around Sam Fairchild’s 120-foot tall mining rig, which appears to mine for silver. The rig is situated beneath a 180-foot diameter dome, which is a distinctive landmark on the Reno skyline. The Silver Legacy is centrally located in downtown Reno, Nevada and offers retail shops, exercise and spa facilities, a salon and an outdoor swimming pool and sundeck.

Circus Reno

Circus Reno is an iconic, circus‑themed hotel‑casino and entertainment complex with two hotel towers, and features a midway with 157 games, live circus acts, an arcade and a full service wedding chapel. It is conveniently located as the first casino directly off Interstate 80 when entering downtown Reno, Nevada.

Isle Casino Hotel-Black Hawk

Isle Casino Hotel-Black Hawk is one of the first gaming facilities reached by customers arriving from Denver via Highway 119, the main thoroughfare connecting Denver to Black Hawk. The property includes a land-based casino and also has approximately 5,000 square feet of flex space that can be used for meetings and special events.

Lady Luck Casino-Black Hawk

Lady Luck Casino-Black Hawk is located across the intersection of Main Street and Mill Street from the Isle Casino Hotel-Black Hawk. The property consists of a land-based casino and also has approximately 2,250 square feet of flex space that can be used for meetings and special events.

Midwest Region

The Midwest segment consists of six properties, four of which are dockside casinos and two land-based casinos, located in Iowa and Missouri.

Waterloo

Our Waterloo, Iowa property is located adjacent to Highway 218 and US 20. The property consists of a single-level land-based casino and offers a wide variety of non-gaming amenities. Our Waterloo property is the only gaming facility in the Waterloo, Iowa market. We compete with other casinos in eastern Iowa.

Bettendorf

Our Bettendorf property is located off Interstate 74, an interstate highway serving the Quad Cities metropolitan area, which consists of Bettendorf and Davenport, Iowa and Moline and Rock Island, Illinois. The property currently consists of a land-based casino, includes two hotel towers and offers 40,000 square feet of flexible convention/banquet space. The Quad Cities metropolitan area currently has three gaming operations, including our gaming facility.

Boonville

Our Boonville property is located three miles off Interstate 70, approximately halfway between Kansas City and St. Louis. It is the only gaming facility in central Missouri. The property consists of a single level dockside casino and offers a 32,400 square foot pavilion and entertainment center and is the only gaming facility in central Missouri. We believe that our Boonville casino attracts customers primarily from the Columbia and Jefferson City areas.

3


 

Cape Girardeau

Our Cape Girardeau property is located three and a half miles from Interstate 55 in Southeast Missouri, approximately 120 miles south of St. Louis, Missouri. The property consists of a dockside casino and offers a pavilion and entertainment center with a wide variety of non-gaming amenities, including an events center, and overlooks the Mississippi river. Our Cape Girardeau property is the only gaming facility in the Cape Girardeau, Missouri market and primarily competes with other gaming operations in Southwest Illinois and Southeast Missouri.

Caruthersville

Our Caruthersville property is a riverboat casino located along the Mississippi River in Southeast Missouri. The property consists of a dockside casino, 40,000 square foot pavilion and also includes a 28-space RV Park. Our casino in Cape Girardeau is located approximately 85 miles north of our Caruthersville casino.

Kansas City

Our Kansas City property consists of a dockside casino and is the closest gaming facility to downtown Kansas City, Missouri. We believe that our Kansas City casino attracts customers primarily from the Kansas City metropolitan area. The Kansas City market consists of four dockside gaming facilities, a land-based facility and a Native American casino.

South Region

The South segment consists of five properties, four of which are dockside casinos in Louisiana and Mississippi and one racino in Florida.

Pompano

Pompano Park, a casino and harness racing track located in Pompano Beach, Florida is located off Interstate 95 and the Florida Turnpike on a 223-acre owned site, near Fort Lauderdale, midway between Miami and West Palm Beach. Pompano Park is the only racetrack licensed to conduct harness racing in Florida. We compete with seven other pari-mutuels and three Native American gaming facilities in the market.

Eldorado Shreveport

Eldorado Shreveport is a premier resort with a tri-level riverboat casino and an all-suite art deco-style hotel located in Shreveport, Louisiana adjacent to Interstate 20, a major highway that connects the Shreveport market with the attractive feeder markets of East Texas and Dallas/Fort Worth, Texas. There are currently six casinos and a racino operating in the Shreveport/Bossier City market.

Lula

Our Lula property is located off of Highway 49, the only road crossing the Mississippi River between Mississippi and Arkansas for more than 50 miles in either direction. The property consists of two dockside casinos and offers a land-based pavilion and entertainment center. Our Lula property is the only gaming facility in Coahoma County, Mississippi and draws a significant amount of business from the Little Rock, Arkansas metropolitan area, which is located approximately 120 miles west of the property. Coahoma County is also located approximately 60 miles southwest of Memphis, Tennessee. Lula competes with Native American casinos in Oklahoma and racinos in West Memphis, Arkansas and Hot Springs, Arkansas.

Vicksburg

Our Vicksburg property is located off Interstate 20 and Highway 61 in western Mississippi, approximately 50 miles west of Jackson, Mississippi, and consists of a dockside casino and a hotel. The Vicksburg market consists of five dockside casinos.

4


 

Lake Charles

Our Lake Charles property is located on a 19-acre site along Interstate 10, the main thoroughfare connecting Houston, Texas to Lake Charles, Louisiana. Lake Charles offers a dockside casino and a 14,750 square foot entertainment center comprised of a 1,142-seat special events center designed for concerts, banquets and other events, meeting facilities and administrative offices. Lake Charles is the closest gaming market to the Houston metropolitan area, which is located approximately 140 miles west of Lake Charles. The Lake Charles market consists of three dockside gaming facilities, a Native American casino and a pari-mutuel facility/racino. In addition, a Native American electronic bingo hall opened approximately 100 miles north of Houston. We believe our Lake Charles property attracts customers primarily from southeast Texas and from local residents.

East Region

The East segment consists of four properties, three of which are racinos, located in Pennsylvania, Ohio and West Virginia.

Presque Isle Downs

Presque Isle Downs is a casino and live thoroughbred horse racing facility located along Interstate 90 in Erie, Pennsylvania. The property offers live thoroughbred horse racing conducted from May through September and on‑site pari‑mutuel wagering and thoroughbred and harness racing simulcast from other prominent tracks, as well as wagering on Presque Isle Downs’ races. Presque Isle Downs’ market is comprised of nine casinos, including Mountaineer, in West Virginia, Ohio and Pennsylvania.

Nemacolin

Lady Luck Nemacolin is a casino located on the 2,000 acre Nemacolin Woodlands Resort in Western Pennsylvania. Our Nemacolin property is the only casino in Fayette County, Pennsylvania. The closest competing casino to Nemacolin is approximately 60 miles away. The Nemacolin facility competes primarily with a casino and a racino in the Pittsburgh, Pennsylvania area and a casino in Rocky Gap, Maryland.

Scioto Downs

Scioto Downs is a modern “racino” located in the heart of Central Ohio, off Highway 23/South High Street, approximately eight miles from downtown Columbus and is one of only two licensed gaming facilities in the Columbus area. The Scioto Downs racino also offers live standard bred harness horse racing conducted from May through mid‑September and on‑site pari‑mutuel wagering and thoroughbred, harness and greyhound racing simulcast from other prominent tracks, as well as wagering on Scioto Downs’ races.

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

Mountaineer

Mountaineer is a hotel, casino, entertainment and live thoroughbred horse racing facility located on the Ohio River at the northern tip of West Virginia’s northwestern panhandle, approximately thirty miles from the Pittsburgh International Airport and a one‑hour drive from downtown Pittsburgh. Mountaineer is a diverse gaming, entertainment and convention complex offering live thoroughbred horse racing conducted from March through December and on‑site pari‑mutuel wagering and thoroughbred, harness and greyhound racing simulcast from other prominent tracks, as well as wagering on Mountaineer’s races. Mountaineer’s market is comprised of nine casinos, including Presque Isle Downs property, in West Virginia, Ohio and Pennsylvania.

5


 

Business Strengths and Strategy

Personal service and high quality amenities

We focus on customer satisfaction and delivering superior guest experiences. We seek to provide our customers with an extraordinary level of personal service and popular gaming, dining and entertainment experiences designed to exceed customer expectations in a clean, safe, friendly and fun environment. Our senior management is actively involved in the daily operations of our properties, frequently interacting with gaming, hotel and restaurant patrons to ensure that they are receiving the highest level of personal attention. Management believes that personal service is an integral part of fostering customer loyalty and generating repeat business. We continually monitor our casino operations to react to changing market conditions and customer demands. We target both premium-play and value-conscious gaming patrons with differentiated offerings at our state-of-the-art casinos, which feature the latest in game technology, innovative bonus options, dynamic signage, customer-convenient features and non-gaming amenities at a reasonable value and price point.

Diversified portfolio across markets and customer segments

We are geographically diversified across the United States, with no single property accounting for more than 12% of our net revenues for the year ended December 31, 2017. Our customer pool draws from a diversified base of both local and out-of-town patrons. We have also initiated changes to our marketing strategy to reach more potential customers through targeted direct mailings and electronic marketing. We believe we have assembled a platform on which we can continue to grow and provide a differentiated customer experience.

Management team with deep gaming industry experience and strong local relationships

We have an experienced management team that includes, among others, Gary Carano, our Chief Executive Officer and the Chairman of the Board, who has more than thirty years of experience in the gaming and hotel industry. Mr. Carano was the driving force behind ERI’s development and operations in Nevada and Louisiana and ERI’s acquisition of Isle of Capri, MTR Gaming and Circus Reno. In addition to Gary Carano, our senior executives have significant experience in the gaming and finance industries. Our extensive management experience and unwavering commitment to our team members, guests and equity holders have been the primary drivers of our strategic goals and success. We take pride in our reinvestment in our properties and the communities we support along with emphasizing our family-style approach in an effort to build loyalty among our team members and guests. We will continue to focus on the future growth and diversification of our company while maintaining our core values and striving for operational excellence.

Governmental Gaming Regulations

The gaming and racing industries are highly regulated and we must maintain our licenses and pay gaming taxes to continue our operations. We are subject to extensive regulation under laws, rules and supervisory procedures primarily in the jurisdictions where our facilities are located or docked. These laws, rules and regulations generally concern the responsibility, financial stability and characters of the owners, managers, and persons with financial interests in the gaming operations. If additional gaming regulations are adopted in a jurisdiction in which we operate, such regulations could impose restrictions or costs that could have a significant adverse effect on us. From time to time, various proposals have been introduced in legislatures of jurisdictions in which we have operations that, if enacted, could adversely affect the tax, regulatory, operational or other aspects of the gaming industry and us. We do not know whether or when such legislation will be enacted. Gaming companies are currently subject to significant state and local taxes and fees in addition to normal federal and state corporate income taxes, and such taxes and fees are subject to increase at any time. Any material increase in these taxes or fees could adversely affect us.

Some jurisdictions, including those in which we are licensed, empower their regulators to investigate participation by licensees in gaming outside their jurisdiction and require access to periodic reports respecting those gaming activities. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions.

Under provisions of gaming laws in jurisdictions in which we have operations, and under our organizational documents, certain of our securities are subject to restriction on ownership which may be imposed by specified governmental authorities. The restrictions may require a holder of our securities to dispose of the securities or, if the holder refuses, or is unable, to dispose of the securities, we may be required to repurchase the securities.

A more detailed description of the regulations to which we are subject is contained in Exhibit 99.1 to this Annual Report on Form 10‑K, which is incorporated herein by reference.

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Reporting and Record‑Keeping Requirements

We are required periodically to submit detailed financial and operating reports and furnish any other information about us and our subsidiaries that gaming authorities may require. We are required to maintain a current stock ledger that may be examined by gaming authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to gaming authorities. A failure to make such disclosure may be grounds for finding the record holder unsuitable. Gaming authorities may, and in certain jurisdictions do, require certificates for our securities to bear a legend indicating that the securities are subject to specified gaming laws.

Taxation

Gaming companies are typically subject to significant taxes and fees in addition to normal federal, state and local income taxes, and such taxes and fees are subject to increase at any time. We pay substantial taxes and fees with respect to our operations. From time to time, federal, state, local and provincial legislators and officials have proposed changes in tax laws, or in the administration of such laws, affecting the gaming industry. It is not possible to determine with certainty the likelihood of changes in tax laws or in the administration of such laws.

Internal Revenue Service Regulations

The Internal Revenue Service requires operators of casinos located in the United States to file information returns for U.S. citizens, including names and addresses of winners, for keno, bingo and slot machine winnings in excess of stipulated amounts. The Internal Revenue Service also requires operators to withhold taxes on some keno, bingo and slot machine winnings of nonresident aliens. We are unable to predict the extent to which these requirements, if extended, might impede or otherwise adversely affect operations of, and/or income from, the other games.

Regulations adopted by the Financial Crimes Enforcement Network of the Treasury Department (“FINCEN”) and the Nevada Gaming Authorities require the reporting of currency transactions in excess of $10,000 occurring within a gaming day, including identification of the patron by name and social security number. This reporting obligation began in May 1985 and may have resulted in the loss of gaming revenues to jurisdictions outside the United States which are exempt from the ambit of these regulations. In addition to currency transaction reporting requirements, suspicious financial activity is also required to be reported to FINCEN.

Other Laws and Regulations

Our businesses are subject to various federal, state and local laws and regulations in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, food service, smoking, environmental matters, employees and employment practices, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our operating results.

The sale of alcoholic beverages is subject to licensing, control and regulation by applicable local regulatory agencies. All licenses are revocable and are not transferable. The agencies involved have full power to limit, condition, suspend or revoke any license, and any disciplinary action could, and revocation would, have a material adverse effect upon our operations.

Intellectual Property

We use a variety of trade names, service marks, trademarks, patents and copyrights in our operations and believe that we have all the licenses necessary to conduct our continuing operations. We have registered several service marks, trademarks, patents and copyrights with the United States Patent and Trademark Office or otherwise acquired the licenses to use those which are material to conduct our business. We also own patents relating to unique casino games. We file copyright applications to protect our creative artworks, which are often featured in property branding, as well as our distinctive website content.

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Seasonality

Casino, hotel and racing operations in our markets are subject to seasonal variation. Seasonal weather conditions can frequently adversely affect transportation routes to each of our properties and also may cause flooding and other effects that result in closure of our Southern properties and cancellations of live horse racing at the Eastern properties. As a result, unfavorable seasonal conditions could have a material adverse effect on our operations.

Environmental Matters

We are subject to various federal, state and local environmental, health and safety laws and regulations, including those relating to the use, storage, discharge, emission and disposal of hazardous materials and solid, animal and hazardous wastes and exposure to hazardous materials. Such laws and regulations can impose liability on potentially responsible parties, including the owners or operators of real property, to clean up, or contribute to the cost of cleaning up, sites at which hazardous wastes or materials were disposed of or released. In addition to investigation and remediation liabilities that could arise under such laws and regulations, we could also face personal injury, property damage, fines or other claims by third parties concerning environmental compliance or contamination or exposure to hazardous materials, and could be subject to significant fines or penalties for any violations. We have from time to time been responsible for investigating and remediating, or contributing to remediation costs related to, contamination located at or near certain of our facilities, including contamination related to underground storage tanks and groundwater contamination arising from prior uses of land on which certain of our facilities are located. In addition, we have been, and may in the future be, required to manage, abate, remove or contain manure and wastewater generated by concentrated animal feeding operations due to our racetrack operations, mold, lead, asbestos‑containing materials or other hazardous conditions found in or on our properties. Although we have incurred, and expect that we will continue to incur, costs related to the investigation, identification and remediation of hazardous materials or conditions known or discovered to exist at our properties, those costs have not had, and are not expected to have, a material adverse effect on our financial condition, results of operations or cash flow.

Employees

As of December 31, 2017, we had approximately 12,500 employees. As of such date, we had 11 collective bargaining agreements covering approximately 970 employees. Three collective bargaining agreements are scheduled to expire this year. There can be no assurance that we will be able to extend or enter into replacement agreements. If we are able to extend or enter into replacement agreements, there can be no assurance as to whether the terms will be on comparable terms to the existing agreements.

Cautionary Statement Regarding Forward‑Looking Information

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

 

projections of future results of operations or financial condition;

 

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

 

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

 

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

 

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

 

expectations regarding availability of capital resources;

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our intention to pursue development opportunities and acquisitions and our ability to obtain financing for, and realize the anticipated benefits, of such development and acquisitions; and

 

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

changes in interest rates and capital and credit markets;

 

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

 

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

 

construction factors relating to maintenance and expansion of operations;

 

our ability to attract and retain customers;

 

weather or road conditions limiting access to our properties;

 

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

 

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

 

Other factors set forth under “Item 1A. Risk Factors.”

In light of these and other risks, uncertainties and assumptions, the forward‑looking events discussed in this report might not occur. These forward‑looking statements speak only as of the date of this Annual Report on Form 10‑K, even if subsequently made available on our website or otherwise, and we do not intend to update publicly any forward‑looking statement to reflect events or circumstances that occur after the date on which the statement is made, except as may be required by law.

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

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Available Information

We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). You may read and copy, at prescribed rates, any document we have filed at the SEC’s public reference room in Washington, D.C. Please call the SEC at 1‑800‑SEC‑0330 (1‑800‑732‑0330) for further information on the public reference room. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC (http://www.sec.gov). You also may read and copy reports and other information filed by us at the office of The NASDAQ Stock Market, One Liberty Plaza, 165 Broadway, New York, NY 10006.

We make our Annual Reports on Form 10‑K, our Quarterly Reports on Form 10‑Q, our Current Reports on Form 8‑K, and all amendments to these reports, available free of charge on our corporate website (www.eldoradoresorts.com) as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC. In addition, our Code of Ethics and Business Conduct and charters of the Audit Committee, Compensation Committee, and the Nominating and Corporate Governance Committee are available on our website. We will provide reasonable quantities of electronic or paper copies of filings free of charge upon request. In addition, we will provide a copy of the above referenced charters to stockholders upon request.

References in this document to our website address do not incorporate by reference the information contained on the website into this Annual Report on Form 10‑K.

Item 1A.

Risk Factors.

Risk Factors Relating to our Operations

Our business is sensitive to reductions in discretionary consumer spending as a result of downturns in the economy and other factors outside our control

Consumer demand for casino hotel and racetrack properties such as ours is particularly sensitive to downturns in the economy and the associated impact on discretionary spending on leisure activities. Changes in discretionary consumer spending or consumer preferences brought about by factors such as perceived or actual general economic conditions, effects of declines in consumer confidence in the economy, the impact of high energy and food costs, the increased cost of travel, the potential for continued bank failures, decreased disposable consumer income and wealth, or fears of war and future acts of terrorism could further reduce customer demand for the amenities that we offer. In addition, increases in gasoline prices, including increases prompted by global political and economic instabilities, can adversely affect our operations because most of our patrons travel to our properties by car or on airlines that may pass on increases in fuel costs to passengers in the form of higher ticket prices. Further, security concerns, terrorist attacks and other geopolitical events can have a material adverse effect on leisure and business travel, discretionary spending and other areas of economic behavior that directly impact the gaming and entertainment industries in general and our business in particular. Economic downturns, geopolitical events and other related factors which impact discretionary consumer spending and other economic events that are beyond our control have had direct effects on our business and the tourism industry in the past and could adversely affect us in the future.

We face substantial competition in the hotel and casino industry and expect that such competition will continue

The gaming industry is characterized by an increasingly high degree of competition among a large number of participants, including land-based casinos, dockside casinos, riverboat casinos, casinos located on racing tracks and casinos located on Native American reservations and other forms of legalized gaming such as video gaming terminals (VGTs) at bars, restaurants and truck stops. We also compete, to a lesser extent, with other forms of legalized gaming and entertainment such as online computer gambling, bingo, pull tab games, card parlors, sports books, fantasy sports websites, “cruise-to-nowhere” operations, pari-mutuel or telephonic betting on horse racing and dog racing, state-sponsored lotteries, jai-alai, and, in the future, may compete with gaming at other venues. In addition, we compete more generally with other forms of entertainment for the discretionary spending of our customers.

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Gaming competition is intense in most of the markets in which we operate. States that already have legalized casino gaming may further expand gaming, and other states that have not yet legalized gaming may do so in the future. Legalized casino gaming in these states and on Native American reservations in or near our markets or changes to gaming laws in states in which we have operations and in states near our operations could increase competition and could adversely affect our operations. There has been significant competition in our markets as a result of the expansion of facilities by existing market participants, the entrance of new gaming participants into a market or legislative changes in prior years and expanded gaming is under consideration in certain of our markets. For example, gaming facilities in Ohio that commenced operations in recent years present significant competition for Mountaineer, Presque Isle Downs, Nemacolin and Scioto Downs. In addition, the Governor of Pennsylvania signed legislation in October 2017 expanding gaming to allow for up to ten additional casino locations, video gaming terminals (VGTs) at truck stops, interactive gaming (iGaming), gaming at airports and potentially sports wagering. Further, there are two bills pending before the Missouri General Assembly for the expansion of gaming by allowing Class B gaming licensees and daily fantasy sports licensees to conduct sports wagering and the operation of VLTs at various bars, restaurants, veterans and fraternal organizations and convenience stores throughout the state. Any such expansion of legalized gaming could adversely impact our properties.

Casino gaming is currently prohibited in several jurisdictions from which the Shreveport/Bossier City and Lake Charles markets draw customers, primarily Texas. The Texas legislature has from time to time considered proposals to legalize gaming, and there can be no assurance that casino gaming will not be approved in Texas in the future, which could have a material adverse effect on Eldorado Shreveport and Isle Lake Charles. Additionally, since visitors from California comprise a significant portion of our customer base in Reno, we also compete with Native American gaming operations in California. Native American tribes are allowed to operate slot machines, lottery games and banking and percentage games on Native American lands. Although many existing Native American gaming facilities in northern California are modest compared to the Nevada properties, a number of Native American tribes have established large-scale gaming facilities in California. Additionally, from time to time the State of Florida has entered into or amended gaming compacts with Native American casinos or enacted, amended or discussed possible changes in gaming laws which could have positive or negative impacts on our Pompano operations. In addition, various forms of internet gaming have been approved in Nevada, New Jersey, Delaware, and Pennsylvania, and legislation permitting internet gaming has been proposed by the federal government and other states. The expansion of internet gaming in Nevada and other jurisdictions could result in significant additional competition.

Increased competition may require us to make substantial capital expenditures to maintain and enhance the competitive positions of our properties to increase the attractiveness and add to the appeal of our facilities. Because we are highly leveraged, after satisfying our obligations under our outstanding indebtedness, there can be no assurance that we will have sufficient funds to undertake these expenditures or that we will be able to obtain sufficient financing to fund such expenditures. If we are unable to make such expenditures, our competitive position could be negatively affected.

Our operations in certain jurisdictions depend on agreements with third parties

Our operations in several jurisdictions depend on agreements with third parties. If we are unable to renew these agreements on satisfactory terms as they expire, our business may be disrupted and, in the event of disruptions in multiple jurisdictions, could have a material adverse effect on our financial condition and results of operations. For example, Iowa law requires that each gambling venue in Iowa must have a licensed “Qualified Sponsoring Organization,” or QSO, which is a tax-exempt non-profit organization. The QSO must donate the profits it receives from casino operations to educational, civic, public, charitable, patriotic or religious uses. Each of our three Iowa properties has an agreement with a local QSO. We have the right to renew our agreements for Bettendorf and Waterloo when they expire in 2025 and 2021, respectively.

The Federal Interstate Horse Racing Act and the state racing laws in certain jurisdictions where we have racetracks require that, in order to simulcast races, we have written agreements with the horse owners and trainers at those racetracks or that we share proceeds of slot machines at the applicable racetrack. If we fail to maintain operative agreements with the horsemen at our racetracks, we will not be permitted to conduct live racing and export and import simulcasting, and may not be permitted to continue our gaming operations, at the applicable racetrack at those facilities, which could have material adverse effect on our business, financial condition and results of operations.

We have a management agreement with Nemacolin Woodlands Resort, the owner of the gaming license issued by the Pennsylvania Gaming Control Board allowing operation of a casino at the resort. Under the terms of this agreement, we constructed and currently operate a casino at the resort. Our management agreement is subject to a buy-out provision on or after December 31, 2021, as well as other terms and conditions which could result in termination of the management agreement. The base term of the agreement is ten years, with four, five-year renewal options. Additionally, each party to the management agreement has certain termination rights. If the management agreement is terminated, we will no longer have the right to manage our casino at Nemacolin Woodlands Resort.

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We are subject to extensive state and local regulation and licensing, and gaming authorities have significant control over our operations, which could have an adverse effect on our business

Licensing Requirements.  The ownership and operation of casino gaming, riverboat and horseracing facilities are subject to extensive federal, state, and local regulation, and regulatory authorities at the federal, state, and local levels have broad powers with respect to the licensing of gaming businesses and may revoke, suspend, condition or limit our gaming or other licenses, impose substantial fines, and take other actions, each of which poses a significant risk to our business, financial condition, and results of operations. We currently hold all state and local licenses and related approvals necessary to conduct our present gaming operations, but we must periodically apply to renew many of our licenses and registrations. We cannot assure you that we will be able to obtain such renewals. Any failure to maintain or renew our existing licenses, registrations, permits or approvals would have a material adverse effect on us. Furthermore, if additional laws or regulations are adopted or existing laws or regulations are amended, these regulations could impose additional restrictions or costs that could have a significant adverse effect on us.

Gaming authorities with jurisdiction over our operations may, in their discretion, require the holder of any securities issued by us to file applications, be investigated, and be found suitable to own our securities if they have reason to believe that the security ownership would be inconsistent with the declared policies of their respective jurisdictions. Further, the costs of any investigation conducted by any of the Gaming Authorities under these circumstances must be paid by the applicant, and refusal or failure to pay these charges may constitute grounds for a finding that the applicant is unsuitable to own the securities. If any of the Gaming Authorities determines that a person is unsuitable to own our securities, then, under the applicable gaming or horse racing laws and regulations, we can be sanctioned, including the loss of approvals that are required for us to continue our gaming operations in the relevant jurisdictions, if such unsuitable person does not timely sell our securities.

Our officers, directors, and key employees are also subject to a variety of regulatory requirements and various licensing and related approval procedures in the various jurisdictions in which we operate gaming facilities. If any of the applicable Gaming Authorities were to find an officer, director or key employee of ours unsuitable for licensing or unsuitable to continue having a relationship with us, we would have to sever all relationships with that person. Furthermore, the Gaming Authorities may require us to terminate the employment of any person who refuses to file appropriate applications. Either result could materially adversely affect our gaming operations.

Applicable gaming laws and regulations restrict our ability to issue securities, incur debt and undertake other financing activities. Such transactions would generally require approval of applicable Gaming Authorities, and our financing counterparties, including lenders, might be subject to various licensing and related approval procedures in the various jurisdictions in which we operate gaming facilities. If state regulatory authorities were to find any person unsuitable with regard to his, her or its relationship to us or any of our subsidiaries, we would be required to sever our relationships with that person, which could materially adversely affect our business.

Compliance with Other Laws.  We are also subject to a variety of other federal, state and local laws, rules, regulations and ordinances that apply to non-gaming businesses, including zoning, environmental, construction and land-use laws and regulations governing smoking and the serving of alcoholic beverages. Legislation in various forms to ban indoor tobacco smoking has been enacted or introduced in many states and local jurisdictions, including several of the jurisdictions in which we operate. If additional restrictions on smoking are enacted in our jurisdictions, we could experience a significant decrease in gaming revenue and, particularly if such restrictions are not applicable to all competitive facilities in that gaming market, our business could be materially adversely affected. Under various federal, state and local laws and regulations, an owner or operator of real property may be held liable for the costs of removal or remediation of certain hazardous or toxic substances or wastes located on its property, regardless of whether or not the present owner or operator knows of, or is responsible for, the presence of such substances or wastes. We have not identified any issues associated with our properties that could reasonably be expected to have a material adverse effect on us or the results of our operations. However, several of our properties are located in industrial areas or were used for industrial purposes for many years. As a consequence, it is possible that historical or neighboring activities have affected one or more of our properties and that, as a result, environmental issues could arise in the future, the precise nature of which we cannot now predict. The coverage and attendant compliance costs associated with these laws, regulations and ordinances may result in future additional costs.

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Regulations adopted by FINCEN require us to report currency transactions in excess of $10,000 occurring within a gaming day, including identification of the patron by name and social security number. U.S. Treasury Department regulations also require us to report certain suspicious activity, including any transaction that exceeds $5,000, if we know, suspect or have reason to believe that the transaction involves funds from illegal activity or is designed to evade federal regulations or reporting requirements. Substantial penalties can be imposed if we fail to comply with these regulations. FINCEN has recently increased its focus on gaming companies.

We are required to report certain customer’s gambling winnings via form W-2G to comply with current Internal Revenue Service regulations. Should these regulations change, we would expect to incur additional costs to comply with the revised reporting requirements.

Taxation and Fees. In addition, gaming companies are generally subject to significant revenue-based taxes and fees in addition to normal federal, state, and local income taxes, and such taxes and fees are subject to increase at any time. We pay substantial taxes and fees with respect to our operations. From time to time, federal, state, and local legislators and officials have proposed changes in tax laws, or in the administration of such laws, affecting the gaming industry. In addition, worsening economic conditions could intensify the efforts of state and local governments to raise revenues through increases in gaming taxes and/or property taxes. It is not possible to determine with certainty the likelihood of changes in tax laws or in the administration of such laws. Such changes, if adopted, could have a material adverse effect on our business, financial condition and results of operations. The large number of state and local governments with significant current or projected budget deficits makes it more likely that those governments that currently permit gaming will seek to fund such deficits with new or increased gaming taxes and/or property taxes, and worsening economic conditions could intensify those efforts. Any material increase, or the adoption of additional taxes or fees, could have a material adverse effect on our future financial results.

Income Taxes. We are subject to tax in multiple U.S. tax jurisdictions. Significant judgment is required in determining our provision for income taxes, deferred tax assets or liabilities and in evaluating our tax positions. While we believe our tax positions are consistent with the tax laws in the jurisdictions in which we conduct our business, it is possible that these positions may be overturned by jurisdictional tax authorities, which may have a significant impact on our provision for income taxes.

Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. The U.S. recently enacted significant tax reform, and certain provisions of the new law may adversely affect us. In addition, governmental tax authorities are increasingly scrutinizing the tax positions of companies. If U.S. or state tax authorities change applicable tax laws, our overall taxes could increase, and our business, financial condition or results of operations may be adversely impacted.

We rely on our key personnel and we may face difficulties in attracting and retaining qualified employees for our casinos and race tracks

Our future success will depend upon, among other things, our ability to keep our senior executives and highly qualified employees. We compete with other potential employers for employees, and we may not succeed in hiring or retaining the executives and other employees that we need. A sudden loss of or inability to replace key employees could have a material adverse effect on our business, financial condition and results of operation.

In addition, the operation of our business requires qualified executives, managers and skilled employees with gaming and horse racing industry experience and qualifications who are able to obtain the requisite licenses and approval from the applicable Gaming Authorities. While not currently the case, there has from time to time been a shortage of skilled labor in our markets. In addition to limitations that may otherwise exist in the supply of skilled labor, the continued expansion of gaming near our facilities, including the expansion of Native American gaming, may make it more difficult for us to attract qualified individuals. While we believe that we will continue to be able to attract and retain qualified employees, shortages of skilled labor will make it increasingly difficult and expensive to attract and retain the services of a satisfactory number of qualified employees, and we may incur higher costs than expected as a result.

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Work stoppages, organizing drives and other labor problems could negatively impact our future profits

As of December 31, 2017, we had 11 collective bargaining agreements covering approximately 970 employees. A lengthy strike or other work stoppages at any of our casino properties could have an adverse effect on our business and results of operations. Given the large number of employees, labor unions are making a concerted effort to recruit more employees in the gaming industry, including at some of our properties. As a result, we cannot provide any assurance that we will not experience additional and more successful union organization activity in the future.

Some of our casinos are located on leased property. If we default on one or more leases, the applicable lessors could terminate the affected leases and we could lose possession of the affected casino

We lease certain parcels of land on which several of our properties are located. As a ground lessee, we have the right to use the leased land; however, we do not hold fee ownership in the underlying land. Accordingly, with respect to the leased land, we will have no interest in the land or improvements thereon at the expiration of the ground leases. Moreover, since we do not completely control the land underlying the property, a landowner could take certain actions to disrupt our rights in the land leased under the long-term leases which are beyond our control. If the entity owning any leased land chose to disrupt our use either permanently or for a significant period of time, then the value of our assets could be impaired and our business and operations could be adversely affected. If we were to default on any one or more of these leases, the applicable lessors could terminate the affected leases and we could lose possession of the affected land and any improvements on the land, including the hotels and casinos. This would have a significant adverse effect on our business, financial condition and results of operations as we would then be unable to operate all or portions of the affected facilities and may result in the default under our new credit facility.

Because we own real property, we will be subject to extensive environmental regulation, which creates uncertainty regarding future environmental expenditures and liabilities

We are subject to various federal, state and local environmental, health and safety laws and regulations that govern activities that may have adverse environmental effects, such as discharges to air and water, as well as the use, storage, discharge, emission and disposal of solid, animal and hazardous wastes and exposure to hazardous materials. These laws and regulations are complex and frequently subject to change. In addition, our horseracing facilities are subject to laws and regulations that address the impacts of manure and wastewater generated by Concentrated Animal Feeding Operations (“CAFO”) on water quality, including, but not limited to, storm water discharges. CAFO regulations include permit requirements and water quality discharge standards. Enforcement of CAFO regulations has been receiving increased governmental attention. Compliance with these and other environmental laws can, in some circumstances, require significant capital expenditures. We have from time to time been responsible for investigating and remediating, or contributing to remediation costs related to, contamination located at or near certain of our facilities, including contamination related to underground storage tanks and groundwater contamination arising from prior uses of land on which certain of our facilities are located. In addition, we have been, and may in the future be, required to manage, abate, remove or contain manure and wastewater generated by concentrated animal feeding operations due to our racetrack operations, mold, lead, asbestos‑containing materials or other hazardous conditions found in or on our properties. Moreover, violations can result in significant fines or penalties and, in some instances, interruption or cessation of operations.

We are also subject to laws and regulations that create liability and cleanup responsibility for releases of regulated materials into the environment. Certain of these laws and regulations impose strict, and under certain circumstances joint and several, liability on a current or previous owner or operator of property for the costs of remediating regulated materials on or emanating from its property. The costs of investigation, remediation or removal of those substances may be substantial.

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An earthquake, hurricane, flood, other natural disaster or act of terrorism could adversely affect our business

The operations of our facilities are subject to disruption or reduced patronage as a result of severe weather conditions, natural disasters and other casualty events. The Reno area has been, and may in the future be, subject to earthquakes and other natural disasters and Eldorado Shreveport is located in a designated flood zone. Because many of our gaming operations are located on or adjacent to bodies of water, these facilities are subject to risks in addition to those associated with other casinos, including loss of service due to casualty, forces of nature, mechanical failure, extended or extraordinary maintenance, flood, hurricane or other severe weather conditions and other disasters. For example, flooding along the Mississippi River can impact five or more of our properties and result in them being closed for differing periods of time. Our properties in Florida and Louisiana are particularly vulnerable to hurricanes, wind and storm surge. Our Pompano property was closed for four days in 2017 because of storms. In addition, severe weather such as high winds and blizzards occasionally limits access to our land-based facilities in Colorado and Reno. Inadequate insurance or lack of available insurance for these and other certain types or levels of risk could expose us to significant losses in the event that a catastrophe occurred for which we are underinsured. In addition to the damage caused to our properties by a casualty loss, we may suffer business disruption as a result of the casualty event or be subject to claims by third parties that may be injured or harmed. While we carry general liability insurance and business interruption insurance, there can be no assurance that insurance will be available or adequate to cover all loss and damage to which our business or our assets might be subjected. In addition, certain casualty events, such as labor strikes, nuclear events, loss of income due to terrorism, deterioration or corrosion, insect or animal damage and pollution, may not be covered under our policies. Any losses we incur that are not adequately covered by insurance may decrease our future operating income, require us to fund replacements or repairs for destroyed property and reduce the funds available for payments of our obligations. Further, we renew our insurance policies on an annual basis. The cost of coverage may become so high that we may need to further reduce our policy limits or agree to certain exclusions from coverage. Among other factors, it is possible that regional political tensions, homeland security concerns, other catastrophic events or any change in government legislation governing insurance coverage for acts of terrorism could materially adversely affect available insurance coverage and result in increased premiums on available coverage (which may cause us to elect to reduce our policy limits), additional exclusions from coverage or higher deductibles. Among other potential future adverse changes, in the future we may elect to not, or may not be able to, obtain any coverage for losses due to acts of terrorism.

We are subject to risks relating to mechanical failure, forces of nature, casualty, extraordinary maintenance and other causes

All of our facilities will generally be subject to the risk that operations could be halted for a temporary or extended period of time, as the result of casualty, forces of nature, mechanical failure, or extended or extraordinary maintenance, among other causes. In addition, our gaming operations could be damaged or halted due to extreme weather conditions. These risks are particularly pronounced at our riverboat and dockside facilities because of their locations on and adjacent to water.

We are or may become involved in legal proceedings that, if adversely adjudicated or settled, could impact our business and financial condition

From time to time, we are named in lawsuits or other legal proceedings relating to our respective businesses. In particular, the nature of our business subjects us to the risk of lawsuits filed by customers, past and present employees, competitors, business partners and others in the ordinary course of business. As with all legal proceedings, no assurances can be given as to the outcome of these matters. Moreover, legal proceedings can be expensive and time consuming, and we may not be successful in defending or prosecuting these lawsuits, which could result in settlements or damages that could significantly impact our business, financial condition and results of operations.

15


 

Our information technology and other systems are subject to cyber security risk including misappropriation of customer information or other breaches of information security

We collect information relating to our guests and employees for various business purposes, including marketing and promotional purposes. The collection and use of personal data are governed by privacy laws and regulations enacted in the United States. We rely on information technology and other systems to maintain and transmit this personal and financial information, credit card settlements, credit card funds transmissions, mailing lists and reservations information. Our information and processes are subject to the ever-changing threat of compromised security, in the form of a risk of potential breach, system failure, computer virus, or unauthorized or fraudulent use by customers, company employees, or employees of third party vendors. The steps we take to deter and mitigate these risks may not be successful, and any resulting compromise or loss of data or systems could adversely impact, operations or regulatory compliance and could result in remedial expenses, fines, litigation, and loss of reputation, potentially impacting our financial results.

In addition, third party service providers and other business partners process and maintain proprietary business information and data related to our guests, suppliers and other business partners. Our information technology and other systems that maintain and transmit this information, or those of service providers or business partners, may also be compromised by a malicious third party penetration of our network security or that of a third party service provider or business partner, or impacted by intentional or unintentional actions or inactions by our employees or those of a third party service provider or business partner. As a result, our business information, guest, supplier, and other business partner data may be lost, disclosed, accessed or taken without their consent.

Any such loss, disclosure or misappropriation of, or access to, guests’ or business partners’ information or other breach of our information security can result in legal claims or legal proceedings, including regulatory investigations and actions, may have a serious impact on our reputation and may adversely affect our businesses, operating results and financial condition. Furthermore, the loss, disclosure or misappropriation of our business information may adversely affect our reputation, businesses, operating results and financial condition.

Our operations have historically been subject to seasonal variations and quarterly fluctuations in operating results, and we can expect to experience such variations and fluctuations in the future

Historically, our operations have typically been subject to seasonal variations. Our strongest operating results for our Reno properties have generally occurred in the second and third quarters and the weakest results have generally occurred during the period from November through February when weather conditions adversely affected operating results. Winter conditions can frequently adversely affect transportation routes to Reno, where a significant of our visitors arrive by ground transportation, and certain of our other properties and cause cancellations of live horse racing. For example, the Reno-Tahoe area experienced exceptionally high levels of snowfall in the first quarter of 2017, with certain resorts in the Tahoe area reporting over 50 feet of snowfall during such time, which adversely affected visitation to our Reno properties and adversely affected our results of operations for the first quarter. As a result, unfavorable seasonal conditions could have a material adverse effect on our operations.

The concentration and evolution of the slot machine manufacturing industry could impose additional costs on us

There are a limited number of slot machine manufacturers servicing the gaming industry and a large majority of our revenues are derived from slot machines at our casinos. It is important, for competitive reasons, that we offer the most popular and up-to-date slot machine games with the latest technology to customers.

In recent years, slot machine manufacturers have frequently refused to sell slot machines featuring the most popular games, instead requiring participating lease arrangements. Generally, a participating lease is substantially more expensive over the long-term than the cost to purchase a new slot machine.

For competitive reasons, we may be forced to acquire new slot machines, slot machine systems or gaming and hotel technology and equipment, or enter into participating lease arrangements, that are more expensive than our costs associated with the continued operation of our existing slot machines, equipment and software. If the newer slot machines, equipment or software do not result in sufficient incremental revenues to offset the increased investment, or if we are unable to successfully implement new software or technology, it could adversely affect our operations and profitability.

16


 

We face risks associated with growth and acquisitions

As part of our business strategy, we regularly evaluate opportunities for growth through development of gaming operations in existing or new markets, through acquiring other gaming entertainment facilities or through redeveloping our existing gaming facilities. In the future, we may also pursue expansion opportunities, including joint ventures, in jurisdictions where casino gaming is not currently permitted in order to be prepared to develop projects upon approval of casino gaming.

Although we only intend to engage in acquisitions that, if consummated, will be accretive to us and our stockholders, we cannot be sure that we will be able to identify attractive acquisition opportunities or that we will experience the return on investment that we expect. In addition, acquisitions require significant management attention and resources to integrate new properties, businesses and operations. Potential difficulties we may encounter as part of the integration process include:

 

the inability to successfully incorporate acquired assets in a manner that permits us to achieve the full revenue and other benefits anticipated to result from the acquired operations;

 

complexities associated with managing the combined business, including difficulties addressing possible differences in cultures and management philosophies and the challenge of integrating complex systems, technology, networks and other assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies; and

 

potential unknown liabilities and unforeseen increased expenses associated with acquired properties.  

In addition, it is possible that the integration process could result in:

 

diversion of the attention of our management;

 

the disruption of, or the loss of momentum in, our ongoing businesses; and

 

inconsistencies in standards, controls, procedures and policies,  

any of which could adversely affect our ability to maintain relationships with customers, suppliers, employees and other constituencies or our ability to achieve the anticipated benefits, or could reduce our earnings or otherwise adversely affect our business and financial results.

There can be no assurance that we will be able to identify, acquire, develop or profitably manage additional companies or operations or successfully integrate such companies or operations, into our existing operations without substantial costs, delays or other problems. Additionally, there can be no assurance that we will receive gaming or other necessary licenses or approvals for new projects that we may pursue or that gaming will be approved in jurisdictions where it is not currently approved.

We may experience construction delays or cost overruns during our expansion or development projects that could adversely affect our operations

From time to time, we may commence construction projects on new properties or at our current properties. We also evaluate other expansion opportunities as they become available and may in the future engage in additional construction projects. The anticipated costs and construction periods for construction projects are based upon budgets, conceptual design documents and construction schedule estimates prepared by us in consultation with our architects. Construction projects entail significant risks, which can substantially increase costs or delay completion of a project. Such risks include shortages of materials or skilled labor, unforeseen engineering, environmental or geological problems, work stoppages, weather interference and unanticipated cost increases. Most of these factors are beyond our control. In addition, difficulties or delays in obtaining any of the requisite licenses, permits or authorizations from regulatory authorities can increase the cost or delay the completion of an expansion or development. Significant budget overruns or delays with respect to expansion and development projects could adversely affect our results of operations.

17


 

Our planned capital expenditures may not result in our expected improvements in our business

We regularly expend capital to construct, maintain and renovate our properties to remain competitive, maintain the value and brand standards of our properties and comply with applicable laws and regulations. Our ability to realize the expected returns on our capital investments is dependent on a number of factors, including, general economic conditions; changes to construction plans and specifications; delays in obtaining or inability to obtain necessary permits, licenses and approvals; disputes with contractors; disruptions to our business caused by construction; and other unanticipated circumstances or cost increases.

While we believe that the overall budgets for our planned capital expenditures are reasonable, these costs are estimates and the actual costs may be higher than expected. In addition, we can provide no assurance that these investments will be sufficient or that we will realize our expected returns on our capital investments, or any returns at all. A failure to realize our expected returns on capital investments could materially adversely affect our business, financial condition and results of operations.

We may incur impairments to goodwill, indefinite-lived intangible assets, or long-lived assets, which could negatively affect our operating results

As of December 31, 2017, we had $1.7 billion of goodwill and other intangible assets. We perform annual impairment testing for goodwill and indefinite-lived intangible assets as of October 1, or on an interim basis if indicators of impairment exist. For properties with goodwill and/or other intangible assets with indefinite lives, these tests could require the comparison of the implied fair value of each reporting unit to carrying value. During the fourth quarter of 2017, we recorded an impairment charge totaling $38.0 million to reduce the carrying value of goodwill and/or trade names related to our Lake Charles, Lula and Vicksburg reporting units.

We must make various assumptions and estimates in performing our impairment testing. The implied fair value includes estimates of future cash flows that are based on reasonable and supportable assumptions which represent our best estimates of the cash flows expected to result from the use of the assets including their eventual disposition and by a market approach based upon valuation multiples for similar companies. Changes in estimates, increases in our cost of capital, reductions in transaction multiples, operating and capital expenditure assumptions or application of alternative assumptions and definitions, could produce significantly different results.

We also evaluate long-lived assets for impairment if indicators of impairment exist. In assessing the recoverability of the carrying value of such property, equipment and other long-lived assets, we make assumptions regarding future cash flows and residual values.

Future cash flow estimates are, by their nature, subjective and actual results may differ materially from our estimates. If our ongoing estimates of future cash flows are not met, we may have to record additional impairment charges in future accounting periods. Our estimates of cash flows are based on the current regulatory, social and economic climates, recent operating information and budgets, and current operating plans of the various properties where we conduct operations. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, internal operating decisions, or other events affecting various forms of travel and access to our properties.

Risks Related to our Capital Structure and Equity Ownership

We have significant indebtedness

As of December 31, 2017, we and our restricted subsidiaries had $2.2 billion of total indebtedness outstanding consisting of $956.8 million outstanding under our term loan facility (the “New Term Loan Facility” or “New Term Loan”), $875.0 million in aggregate principal amount of outstanding 6.0% senior notes due 2025 (the “6% Senior Notes”) and $375.0 million in aggregate principal amount of outstanding 7.0% senior notes due 2023 (the “7% Senior Notes”). As of December 31, 2017, we had no borrowings outstanding under our $300.0 million revolving credit facility (the “New Revolving Credit Facility” and, together with the New Term Loan, the “New Credit Facility”). This indebtedness may have important negative consequences for us, including:

 

limiting our ability to satisfy our obligations;

 

increasing our vulnerability to general adverse economic and industry conditions;

18


 

 

limiting our flexibility in planning for, or reacting to, changes in our businesses and the markets in which we operate;

 

placing us at a competitive disadvantage compared to competitors that have less debt;

 

increasing our vulnerability to, and limiting our ability to react to, changing market conditions, changes in our industry and economic downturns;

 

limiting our ability to obtain additional financing to fund working capital requirements, capital expenditures, debt service, acquisitions, general corporate or other obligations;

 

subjecting us to a number of restrictive covenants that, among other things, limit our ability to pay dividends and distributions, make acquisitions and dispositions, borrow additional funds, and make capital expenditures and other investments;

 

restricting our and our wholly-owned subsidiaries ability to make dividend payments and other payments;

 

limiting our ability to use operating cash flow in other areas of our business because we must dedicate a significant portion of these funds to make principal and/or interest payments on our outstanding debt;

 

exposing us to interest rate risk due to the variable interest rate on borrowings under our New Credit Facility;

 

causing our failure to comply with the financial and restrictive covenants contained in our current or future indebtedness, which could cause a default under such indebtedness and which, if not cured or waived, could have a material adverse effect on us; and

 

affecting our ability to renew gaming and other licenses necessary to conduct our business.

Despite our current indebtedness levels, we and our subsidiaries may still incur significant additional indebtedness. Incurring more indebtedness could increase the risks associated with our substantial indebtedness

We and our subsidiaries may be able to incur substantial additional indebtedness, including additional secured indebtedness, in the future. As of December 31, 2017, we had $291.6 million of borrowing capacity, after consideration of $8.4 million in outstanding letters of credit, under our New Credit Facility. Our existing debt agreements currently permit, and we expect that agreements governing debt that we incur in the future will permit, us to incur certain other additional secured and unsecured debt. Further, we may incur other liabilities that do not constitute indebtedness. The risks that we face based on our outstanding indebtedness may intensify if we incur additional indebtedness in the future.

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. If our operating results and available cash are insufficient to meet our debt service obligations, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them, and these proceeds may not be adequate to meet any debt service obligations then due. Additionally, the agreements governing our existing debt limit the use of the proceeds from any disposition; as a result, we may not be allowed, under these documents, to use proceeds from such dispositions to satisfy all current debt service obligations.

19


 

The agreements governing our debt impose significant operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities

The agreements governing our existing debt impose significant operating and financial restrictions on us. These restrictions limit our ability, among other things, to:

 

incur additional debt;

 

create liens or other encumbrances;

 

pay dividends or make other restricted payments;

 

agree to payment restrictions affecting our restricted subsidiaries;

 

prepay subordinated indebtedness;

 

make investments, loans or other guarantees;

 

sell or otherwise dispose of a portion of our assets; or

 

make acquisitions or merge or consolidate with another entity.

In addition, the credit agreement governing the New Credit Facility contains certain financial covenants, including minimum interest coverage ratio and maximum total leverage ratio covenants.

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 compete effectively or to take advantage of new business opportunities. The restrictions caused by such covenants could also place us at a competitive disadvantage to less leveraged competitors.

A failure to comply with the covenants contained in the agreements governing our existing or future indebtedness could result in an event of default, which, if not cured or waived, could result in the acceleration of the indebtedness and have a material adverse effect on our business, financial condition and results of operations. If our indebtedness were to be accelerated, there can be no assurance that our assets would be sufficient to repay such indebtedness in full. Moreover, in the event that such indebtedness is accelerated, there can be no assurance that we will be able to refinance it on acceptable terms, or at all.

The market price of our common stock could fluctuate significantly

The U.S. securities markets in general have experienced significant price fluctuations in recent years. The market price of our common stock may be volatile and subject to wide fluctuations. In addition, the trading volume of our common stock may fluctuate and cause significant price variations to occur. Some of the factors that could cause fluctuations in, or have a material adverse effect on, the stock price or trading volume of our common stock include:

 

general market and economic conditions, including market conditions in the hotel and casino industries;

 

actual or expected variations in operating results;

 

differences between actual operating results and those expected by investors and analysts;

 

changes in recommendations by securities analysts;

 

operations and stock performance of competitors;

 

accounting charges, including charges relating to the impairment of goodwill;

 

significant acquisitions or strategic alliances by us or by competitors;

 

sales of our common stock or other securities in the future, including sales by our directors and officers or significant investors;

 

recruitment or departure of key personnel;

 

conditions and trends in the gaming and entertainment industries;

 

changes in the estimate of the future size and growth of our markets; and

 

changes in reserves for professional liability claims.

20


 

We cannot assure you that the stock price of our common stock will not fluctuate or decline significantly in the future. In addition, the stock market in general can experience considerable price and volume fluctuations that may be unrelated to our performance. If the market price of our common stock fluctuates significantly, we may become the subject of securities class action litigation which may result in substantial costs and a diversion of management’s attention and resources.

We have not historically paid dividends and may not pay dividends in the future

We do not currently expect to pay dividends on its common stock. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon among other factors, our earnings, cash requirements, financial condition, requirements to comply with the covenants under its debt instruments, legal considerations, and other factors that our board of directors deems relevant. In addition, the agreements governing our indebtedness restrict its ability to pay dividends. If we do not pay dividends, then the return on an investment in its common stock will depend entirely upon any future appreciation in its stock price. There is no guarantee that our common stock will appreciate in value or maintain its value.

Item 1B.

Unresolved Staff Comments.

None.

Item 2.

Properties.

Information relating to the location and general characteristics of our properties is provided in Part I, Item I, Business, Properties.

As of December 31, 2017, our facilities are located on property that we own or lease, as follows:

 

We lease approximately 30,000 square feet on the approximately 159,000 square foot parcel on which Eldorado Reno is located, in Reno, Nevada.

 

We own two parcels of property totaling 38,000 square feet across the street from Eldorado Reno and two adjacent parcels totaling 18,687 square feet.

 

We own five acres of land in Reno, Nevada where the Silver Legacy is located.

 

Circus Reno leases approximately 36,000 square feet on the approximately 10 acres on which Circus Reno is located, in Reno, Nevada.

 

We lease approximately nine acres of land in Shreveport, Louisiana on which Eldorado Shreveport is located.

 

Mountaineer is located on approximately 1,680 acres of land that we own in Chester, Hancock County, West Virginia. Included in the 1,680 acres of land is approximately 1,290 acres of land that are considered non‑operating real properties.

 

Scioto Downs is located on approximately 208 acres of land that we own in Columbus, Ohio.

 

Presque Isle Downs is located on 272 acres of land that we own in Summit Township, Erie County, Pennsylvania. In addition, we own two other parcels of land: a 213‑acre site in McKean Township, Pennsylvania and a 6‑acre site in Summit Township that formerly housed an off‑track wagering facility, each of which are considered non‑operating real properties.

 

We own approximately 10 acres of land in Black Hawk, Colorado for use in connection with our Black Hawk operations. The property leases an additional parcel of land adjoining the Isle-Black Hawk where the Lady Luck Hotel and parking lot are located. We own or lease approximately seven acres of land in Black Hawk, Colorado for use in connection with the Lady Luck-Black Hawk. The property leases an additional parcel of land near the Lady Luck-Black Hawk for parking as described above.

 

We own approximately 223 acres of land at Pompano.

 

We own approximately 2.7 acres and lease approximately 16.2 acres of land in Calcasieu Parish, Louisiana for use in connection with our Lake Charles operations.

21


 

 

We own approximately 24.6 acres of land in Bettendorf, Iowa used in connection with the operations of our Bettendorf property. We also operate under a long-term lease with the City of Bettendorf, the QC Waterfront Convention Center that is adjacent to our northernmost hotel tower. We also lease approximately eight acres of land on a month-to-month basis.

 

We own approximately 54 acres of land in Waterloo, Iowa used in connection with the operation of our Waterloo property.

 

We lease approximately 1,000 acres of land in Coahoma County, Mississippi and utilize approximately 50 acres in connection with the operations in Lula, Mississippi. We also own approximately 100 acres in Coahoma County, which may be utilized for future development.

 

We own approximately 60 acres in Vicksburg, Mississippi which are used in connection with the operations of our Vicksburg property.

 

We lease our 27 acre casino site in Boonville, Missouri.

 

We own approximately 22 acres in Cape Girardeau, Missouri which are used in connection with the operations of our Cape Girardeau property.

 

We own approximately 37 acres, including our riverboat casino in Caruthersville, Missouri.

 

We lease approximately 28 acres of land in connection with the operation of our Kansas City property.

 

We operate under a lease for 30 acres of land and building in which we operate our Nemacolin casino.

 

We lease our principal corporate offices in Reno, Nevada and Creve Coeur, Missouri.

We own additional property and have various property leases and options to either lease or purchase property that are not directly related to our existing operations and that may be utilized in the future in connection with expansion projects at our existing facilities or development of new projects.

Substantially all of our assets are pledged to secure our outstanding indebtedness under the senior notes and credit obligations.

Item 3.

Legal Proceedings.

We are a party to various legal and administrative proceedings, which have arisen in the normal course of our business. Estimated losses are accrued for these proceedings when the loss is probable and can be estimated. The current liability for the estimated losses associated with these proceedings is not material to our consolidated financial condition and those estimated losses are not expected to have a material impact on our results of operations. In addition, we maintain what we believe is adequate insurance coverage to further mitigate the risks of such proceedings. However, such proceedings can be costly, time consuming and unpredictable and, therefore, no assurance can be given that the final outcome of such proceedings may not materially impact our consolidated financial condition or results of operations. Further, no assurance can be given that the amount of scope of existing insurance coverage will be sufficient to cover losses arising from such matter.

Item 4.

Mine Safety Disclosures.

Not applicable.

22


 

PART II

Item 5.

Market for Registrants’ Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our Common Stock is quoted on the NASDAQ Global Select Market under the symbol “ERI”. On February 23, 2018, the NASDAQ Official Closing Price for our common stock was $33.55. As of February 23, 2018, there were approximately 568 holders of record of our common stock.

We have not paid any cash dividends on our common stock. We intend to retain all of our earnings to finance the development of our business, and thus, do not anticipate paying cash dividends on our common stock for the foreseeable future. Payment of any cash dividends in the future will be at the discretion of our Board of Directors and will depend upon, among other things, our future earnings, operations and capital requirements, our general financial condition and general business conditions. In addition, our senior secured credit facility and senior notes restrict, among other things, our ability to pay dividends. In addition, future financing arrangements may prohibit the payment of dividends under certain conditions. For further information relating to our and our subsidiaries’ dividend policies, see Part II, Item 7, Liquidity and Capital Resources, included in this report.

The following table sets forth the range of high and low closing sale prices for our common stock for two most recent fiscal years.

 

 

 

Stock Price

 

 

 

High

 

 

Low

 

Year ended December 31, 2017:

 

 

 

 

 

 

 

 

 

 

First quarter

 

$

 

19.70

 

 

$

 

15.10

 

Second quarter

 

 

 

21.60

 

 

 

 

17.80

 

Third quarter

 

 

 

25.65

 

 

 

 

19.10

 

Fourth quarter

 

 

 

33.95

 

 

 

 

24.05

 

Year ended December 31, 2016:

 

 

 

 

 

 

 

 

 

 

First quarter

 

$

 

11.60

 

 

$

 

9.17

 

Second quarter

 

 

 

15.27

 

 

 

 

11.16

 

Third quarter

 

 

 

15.32

 

 

 

 

13.59

 

Fourth quarter

 

 

 

16.95

 

 

 

 

10.80

 

 

Equity Compensation Plan Information

The following table sets forth information as of December 31, 2017, with respect to compensation plans under which equity securities that we have authorized for issuance.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

remaining available for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

future issuance under

 

 

 

Number of securities to

 

 

Weighted average

 

 

equity compensation

 

 

 

be issued upon exercise

 

 

exercise price of

 

 

plans (excluding

 

 

 

of outstanding options,

 

 

outstanding options,

 

 

securities reflected

 

Plan Category

 

warrants and rights

 

 

warrants and rights

 

 

in column (a))

 

 

 

 

(a)

 

 

 

 

(b)

 

 

 

(c)

 

MTR Gaming Group, Inc. 2010 Long Term

   Incentive Plan

 

 

 

30,600

 

 

 

$

 

3.98

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Isle of Capri Casinos, Inc. Second Amended and

   Restated 2009 Long Term Stock Incentive Plan

 

 

 

316,231

 

 

 

$

 

12.43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eldorado Resorts, Inc. 2015 Equity Incentive Plan

 

 

 

1,504,520

 

 

 

$

 

11.91

 

 

 

 

1,508,162

 

 

23


 

The Eldorado Resorts, Inc. 2015 Equity Incentive Plan, the Isle of Capri Casinos, Inc. Second Amended and Restated 2009 Long Term Incentive Plan and the MTR Gaming Group, Inc. 2010 Long Term Incentive Plan were approved by stockholders. No future equity awards will be made pursuant to the Isle of Capri Casinos, Inc. Second Amended and Restated 2009 Long Term Incentive Plan and the MTR Gaming Group, Inc. 2010 Long Term Incentive Plan. However, outstanding awards granted under the acquired plans will continue unaffected.

Stock Performance Graph

The following graph demonstrates a comparison of cumulative total returns of the Company, the NASDAQ Market Index (which is considered to be a broad index) and the Dow Jones US Gambling Index for the period since our common stock began trading on September 22, 2014. The following graph assumes $100 invested in each of the above groups and the reinvestment of dividends, if applicable.

Comparison of Cumulative Total Return

Assumes Initial Investment of $100

December 2017

 

Past stock price performance is not necessarily indicative of future results. The performance graph should not be deemed filed or incorporated by reference into any other of our filings under the Securities Act of 1933 or the Exchange Act of 1934, unless we specifically incorporate the performance graph by reference therein.

Item 6.

Selected Financial Data.

The following table sets forth selected consolidated financial data of the Company as of and for each of the five years ended December 31, 2017. This information should be read in conjunction with “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements and notes thereto contained elsewhere in this Annual Report on Form 10-K. Operating results for the periods presented below are not necessarily indicative of the results that may be expected for future years.

The presentation of information herein for periods prior to our acquisitions of the Reno properties, MTR and Isle are not fully comparable because the results of operations for Isle, Circus Reno and MTR Gaming are not included for periods prior to such acquisitions and the results of operations of the Silver Legacy Joint Venture were not consolidated prior to our acquisition of the Reno properties (see Note 1 below).

24


 

SELECTED CONSOLIDATED FINANCIAL DATA

(dollars in thousands)

 

 

 

Year Ended December 31,

 

 

 

 

2017

 

 

 

2016

 

 

 

2015

 

 

 

2014

 

 

 

2013

 

 

Consolidated Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating revenues

 

$

 

1,473,504

 

 

 

$

 

892,896

 

 

 

$

 

719,784

 

 

 

$

 

361,823

 

 

 

$

 

247,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

 

94,869

 

 

 

 

 

89,118

 

 

 

 

 

72,516

 

 

 

 

 

17,555

 

 

 

 

 

22,582

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income before income taxes (1)

 

 

 

(43,330

)

 

 

 

 

38,046

 

 

 

 

 

44,603

 

 

 

 

 

(12,554

)

 

 

 

 

18,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

73,940

 

 

 

 

 

24,802

 

 

 

 

 

114,183

 

 

 

 

 

(14,322

)

 

 

 

 

18,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Net loss attributable to non-controlling interest (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(103

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to the Company (2)

 

$

 

73,940

 

 

 

$

 

24,802

 

 

 

$

 

114,183

 

 

 

$

 

(14,425

)

 

 

$

 

18,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per common share

 

$

 

1.10

 

 

 

$

 

0.53

 

 

 

$

 

2.45

 

 

 

$

 

(0.48

)

 

 

$

 

0.81

 

 

Diluted net income (loss) per common share

 

$

 

1.09

 

 

 

$

 

0.52

 

 

 

$

 

2.43

 

 

 

$

 

(0.48

)

 

 

$

 

0.81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

Consolidated Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

134,596

 

 

$

 

61,029

 

 

$

 

78,278

 

 

$

 

87,604

 

 

$

 

29,813

 

Total assets

 

 

 

3,546,472

 

 

 

 

1,294,044

 

 

 

 

1,325,008

 

 

 

 

1,171,559

 

 

 

 

270,182

 

Total debt (3)

 

 

 

2,190,193

 

 

 

 

800,426

 

 

 

 

866,237

 

 

 

 

775,059

 

 

 

 

170,760

 

Stockholders’ equity

 

 

 

945,126

 

 

 

 

298,451

 

 

 

 

270,667

 

 

 

 

151,622

 

 

 

 

75,575

 

 

Footnotes to Selected Consolidated Financial Data:

(1)

Prior to September 19, 2014, we were taxed as a partnership under the Internal Revenue Code pursuant to which income taxes were primarily the responsibility of the partners. On September 18, 2014, as part of the merger with MTR, we became a C corporation subject to the federal and state corporate‑level income taxes at prevailing corporate tax rates. While taxed as a partnership, we were not subject to federal income tax liability but made distributions to our equity holders to cover such liabilities.

(2)

Prior to our acquisition of the Reno properties, non‑controlling interest represented the minority partners’ share of our subsidiary’s 50% joint venture interest in the Silver Legacy. The non‑controlling interest was owned by certain of our affiliates and was approximately 4%. The non‑controlling interest in the Silver Legacy was 1.9%. We acquired the remaining 50% joint venture interest pursuant to our acquisition of the Reno properties and exercised our right to acquire such non‑controlling interest.

(3)

Total debt, including current portion, is reported net of unamortized discounts and premiums, and includes capital leases of $0.9 million, $0.5 million, $0.8 million and $0.3 million for the years ended December 31, 2017, 2016, 2015 and 2013, respectively. There were no capital leases in 2014.

 

25


 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

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

Overview

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

We were founded in 1973 by the Carano Family with the opening of the Eldorado Hotel Casino in Reno, Nevada. In 1993, we partnered with MGM Resorts International on the Silver Legacy Resort Casino, the first mega-themed resort in Reno. In 2005, we acquired our first property outside of Reno when we acquired a casino in Shreveport, Louisiana, now known as Eldorado Shreveport. In September 2014, we merged with MTR Gaming Group, Inc. and acquired its three gaming and racing facilities in Ohio, Pennsylvania and West Virginia. The following year, in November 2015, we acquired Circus Circus Reno and the 50% membership interest in the Silver Legacy that was owned by MGM Resorts International.

On May 1, 2017, we completed our most recent – and largest - acquisition to date when we acquired Isle of Capri Casinos, Inc. (“Isle” or “Isle of Capri”), adding another 13 gaming properties to our portfolio.

Throughout the year ended December 31, 2017, we owned and operated the following properties:

 

Eldorado Resort Casino Reno (Eldorado Reno)A 814-room hotel, casino and entertainment facility connected via an enclosed skywalk to Silver Legacy and Circus Reno located in downtown Reno, Nevada that includes 1,125 slot machines and 46 table games;

 

Silver Legacy Resort Casino (Silver Legacy)A 1,711-room themed hotel and casino connected via an enclosed skywalk to Eldorado Reno and Circus Reno that includes 1,187 slot machines, 63 table games and a 13 table poker room;

 

Circus Circus Reno (Circus Reno)A 1,571-room hotel-casino and entertainment complex connected via an enclosed skywalk to Eldorado Reno and Silver Legacy that includes 712 slot machines and 24 table games;

 

Eldorado Resort Casino Shreveport (Eldorado Shreveport)A 403-room, all suite art deco-style hotel and tri-level riverboat dockside casino situated on the Red River in Shreveport, Louisiana that includes 1,397 slot machines, 52 table games and an eight table poker room;

 

Mountaineer Casino, Racetrack & Resort (Mountaineer)A 357-room hotel, casino, entertainment and live thoroughbred horse racing facility located on the Ohio River at the northern tip of West Virginias northwestern panhandle that includes 1,508 slot machines, 36 table games, including a 10 table poker room;

 

Presque Isle Downs & Casino (Presque Isle Downs)A casino and live thoroughbred horse racing facility with 1,593 slot machines, 33 table games and a seven table poker room located in Erie, Pennsylvania; and

 

Eldorado Gaming Scioto Downs (Scioto Downs)A modern racino offering 2,245 VLTs, harness racing and a 118-room third party hotel connected to Scioto Downs located 15 minutes from downtown Columbus, Ohio.

In addition, on May 1, 2017, we consummated our acquisition of Isle of Capri Casinos, Inc. and acquired the following properties:

 

Isle Casino HotelBlack Hawk (“Isle Black Hawk”)A land-based casino on an approximately 10-acre site in Black Hawk, Colorado that includes 1,026 slot machines, 27 table games, a nine table poker room and a 238-room hotel;

 

Lady Luck CasinoBlack Hawk (“Lady Luck Black Hawk”)A land-based casino across the intersection from Isle Casino Hotel in Black Hawk, Colorado, that includes 452 slot machines, 10 table games, five poker tables and a 164-room hotel with a parking structure connecting Isle Casino Hotel-Black Hawk and Lady Luck Casino-Black Hawk;

26


 

 

Isle Casino Racing Pompano Park (“Pompano”)A casino and harness racing track on an approximately 223-acre owned site in Pompano Beach, Florida, that includes 1,455 slot machines and a 45 table poker room;

 

Isle Casino Bettendorf (“Bettendorf”)A land-based single-level casino located off Interstate 74 in Bettendorf, Iowa that includes 978 slot machines and 20 table games with two hotel towers with 509 hotel rooms;

 

Isle Casino Waterloo (“Waterloo”)A single-level land-based casino in Waterloo, Iowa that includes 940 slot machines, 25 table games, and a 194-room hotel;

 

Isle of Capri Casino Hotel Lake Charles (“Lake Charles”)A gaming vessel on an approximately 19 acre site in Lake Charles, Louisiana, with 1,173 slot machines, 47 table games, including 13 poker tables and two hotels offering 493 rooms;

 

Isle of Capri Casino Lula (“Lula”)Two dockside casinos in Lula, Mississippi with 875 slot machines and 20 table games, two on-site hotels with a total of 486 rooms and a 28-space RV Park;

 

Lady Luck Casino Vicksburg (“Vicksburg”)A dockside casino in Vicksburg, Mississippi that includes 616 slot machines, nine table games and a hotel with a total of 89 rooms;

 

Isle of Capri Casino Boonville (“Boonville”)A single-level dockside casino in Boonville, Missouri that includes 893 slot machines, 20 table games and a 140-room hotel;

 

Isle Casino Cape Girardeau (“Cape Girardeau”)A dockside casino and pavilion and entertainment center in Cape Girardeau, Missouri that includes 872 slot machines, and 24 table games, including four poker tables;

 

Lady Luck Casino Caruthersville (“Caruthersville”)—A riverboat casino located along the Mississippi River in Caruthersville, Missouri that includes 516 slot machines and nine table games;

 

Isle of Capri Casino Kansas City (“Kansas City”)A dockside casino located close to downtown Kansas City, Missouri offering 966 slot machines and 18 table games; and

 

Lady Luck Casino Nemacolin (“Nemacolin”)A casino property located on the 2,000-acre Nemacolin Woodlands Resort in Western Pennsylvania that includes 600 slot machines and 28 table games.

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

Acquisition of Isle of Capri Casinos, Inc.

On May 1, 2017, we completed our acquisition of Isle of Capri Casinos, Inc. pursuant to the Agreement and Plan of Merger dated as of September 19, 2016 with Isle of Capri Casinos, Inc., a Delaware corporation, Eagle I Acquisition Corp., a Delaware corporation and our wholly-owned subsidiary, and Eagle II Acquisition Company LLC, a Delaware limited liability company and our wholly-owned subsidiary. As a result of the acquisition of Isle, Isle became a wholly-owned subsidiary of ours and, at the effective time of the acquisition of Isle, each outstanding share of Isle common stock converted into the right to receive $23.00 in cash or 1.638 shares of our common stock, at the election of the applicable Isle shareholder and subject to proration such that the outstanding shares of Isle common stock were exchanged for aggregate consideration comprised of 58% cash, or $552.0 million, and 42% of our common stock, or 28.5 million newly issued shares of our common stock. The total purchase consideration was $1.93 billion.

In connection with our acquisition of Isle, we completed a debt financing transaction comprised of: (a) a senior secured credit facility in an aggregate principal amount of $1.75 billion with a (i) term loan facility of $1.45 billion and (ii) revolving credit facility of $300.0 million and (b) $375.0 million of senior unsecured notes. The proceeds of such borrowings were used to pay the cash portion of the consideration payable in the acquisition of Isle, refinance all of Isle’s existing credit facilities, redeem or otherwise repurchase all of Isle’s senior and senior subordinated notes, refinance our existing credit facility and pay transaction fees and expenses related to the foregoing.

27


 

Reportable Segments

The executive decision maker of our company reviews operating results, assesses performance and makes decisions on a “significant market” basis. Our management views each of its properties as an operating segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, the regulatory environments in which they operate, and their management and reporting structure. Prior to our acquisition of Isle, our principal operating activities occurred in three geographic regions: Nevada, Louisiana and parts of the eastern United States. We aggregated our operations into three reportable segments based on the similar characteristics of the operating segments within the regions in which they operated as follows:

 

Segment

 

Property

 

State

Nevada

 

Eldorado Reno

 

Nevada

 

 

Silver Legacy

 

Nevada

 

 

Circus Reno

 

Nevada

 

 

 

 

 

Louisiana

 

Eldorado Shreveport

 

Louisiana

 

 

 

 

 

Eastern

 

Presque Isle Downs

 

Pennsylvania

 

 

Scioto Downs

 

Ohio

 

 

Mountaineer

 

West Virginia

 

Following our acquisition of Isle, our principal operating activities expanded and now occur in four geographic regions and reportable segments based on the similar characteristics of the operating segments within the regions in which they operate. The following table summarizes our current segments:

 

Segment

 

Property

 

State

West

 

Eldorado Reno

 

Nevada

 

 

Silver Legacy

 

Nevada

 

 

Circus Reno

 

Nevada

 

 

Isle Black Hawk

 

Colorado

 

 

Lady Luck Black Hawk

 

Colorado

 

 

 

 

 

Midwest

 

Waterloo

 

Iowa

 

 

Bettendorf

 

Iowa

 

 

Boonville

 

Missouri

 

 

Cape Girardeau

 

Missouri

 

 

Caruthersville

 

Missouri

 

 

Kansas City

 

Missouri

 

 

 

 

 

South

 

Pompano

 

Florida

 

 

Eldorado Shreveport

 

Louisiana

 

 

Lake Charles

 

Louisiana

 

 

Lula

 

Mississippi

 

 

Vicksburg

 

Mississippi

 

 

 

 

 

East

 

Presque Isle Downs

 

Pennsylvania

 

 

Nemacolin

 

Pennsylvania

 

 

Scioto Downs

 

Ohio

 

 

Mountaineer

 

West Virginia

Presentation of Financial Information

The financial information included in this Item 7 for periods prior to our acquisition of Isle are those of ERI and its subsidiaries. The presentation of information herein for periods prior to our acquisition of Isle and after our acquisition of Isle are not fully comparable because the results of operations for Isle are not included for periods prior to our acquisition of Isle. Summary financial results of Isle for the three and nine months ended January 22, 2017 are included in Isle’s Quarterly Report on Form 10-Q as filed with the Securities and Exchange Commission (‘‘SEC’’). In conjunction with our acquisition of Isle, Isle is no longer required to file quarterly and annual reports with the SEC, and terminated its registration on May 11, 2017.

28


 

The presentation of information herein for periods prior to and after our acquisition of the Reno properties are not fully comparable because the results of operations for Circus Reno are not included for periods prior to our acquisition of the Reno properties and the results of operations of the Silver Legacy Joint Venture were not consolidated prior to our acquisition of the Reno properties.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist in better understanding and evaluating our financial condition and results of operations. Our historical operating results may not be indicative of our future results of operations because of these factors and the changing competitive landscape in each of our markets, as well as by factors discussed elsewhere herein. We recommend that you read this MD&A in conjunction with our audited consolidated financial statements and the notes to those statements included in this Annual Report on Form 10-K.

Key Performance Metrics

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

Significant Factors Impacting Financial Results

The following summary highlights the significant factors impacting our financial results during the years ended December 31, 2017, 2016 and 2015.

 

Isle Acquisition Our results of continuing operations for the year ended December 31, 2017 include incremental revenues and expenses for eight months (May 2017 through December 2017) attributable to the thirteen properties we acquired in our acquisition of Isle.

Transaction expenses related to our acquisition of Isle for legal, accounting, financial advisory services, severance, stock awards and other costs totaled $92.8 million and $8.6 million for the years ending December 31, 2017 and 2016, respectively.

 

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

In previous periods, the operations of Lake Charles have been classified as discontinued operations and as an asset held for sale. As a result of the termination of the sale, Lake Charles is no longer classified as an asset held for sale and accounted for as discontinued operations, and is included in our results of operations for the eight-month period from the date we acquired Isle through December 31, 2017.

 

Income Taxes – On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate from 35% to 21%. In connection with our initial analysis of the impact of the Tax Act, for certain of our net deferred tax liabilities, we have recorded a decrease of $112.4 million, net of the related change in valuation allowance, with a corresponding net adjustment to deferred income tax benefit for the year ending December 31, 2017 as a result of the corporate rate reduction resulting in a positive impact on net income.

29


 

 

Debt Refinancing – In connection with our acquisition of Isle, we completed a new debt financing transaction. The proceeds of the new borrowings were used to pay the cash portion of the consideration payable in the acquisition of Isle, refinance all of Isle’s existing credit facilities, redeem or otherwise repurchase all of Isle’s senior and senior subordinated notes, refinance our existing credit facility and pay transaction fees and expenses. In addition, we recognized a loss totaling $27.3 million for the year ended December 31, 2017 as a result of the debt refinancing transaction (See “Liquidity and Capital Resources” for more information related to the debt refinancing).

On September 13, 2017, we issued an additional $500 million in aggregate principal amount of 6% Senior Notes at an issue price equal to 105.5% of the principal amount. We used the proceeds of the offering to repay all of the outstanding borrowings under the new revolving credit facility totaling $78.0 million and used the remainder to repay outstanding borrowings totaling $444.5 million under the new term loan plus related accrued interest. We recognized a loss of $11.1 million as a result of the issuance of additional debt and retirement of existing debt.

 

Impairment Charges – During the fourth quarter of 2017, we conducted annual impairment tests of our intangible assets. Based on less than expected operating performance and projected future operating results, it was determined that the value of goodwill and/or trade names associated with our Lake Charles, Vicksburg and Lula reporting units were impaired resulting in impairment charges totaling $38.0 million recorded in the current year.

 

Severe Weather – During the third quarter of 2017, Hurricanes Harvey and Irma negatively impacted our South region, specifically our Pompano, Lake Charles and Eldorado Shreveport properties, and made travel to those properties impossible or difficult. While Pompano did not sustain any major physical damage, we incurred incremental expenses as a result of the storms and were forced to close the casino for four days and experienced disruption to our business for a longer period of time.

Our West segment’s operations are subject to seasonal variation, with our lowest business volume generally occurring during the winter months. The northern Nevada region experienced record snowfall and severe weather conditions, including major snow storms during eleven of the fourteen weekends in the 2017 first quarter, making travel to Reno from northern California, our main feeder market, difficult or impossible due to road closures. As a result, there was a significant adverse effect on business levels, especially hotel occupancy and gaming volume, during the first quarter of 2017, and our operating performance for the year ended December 31, 2017 compared to 2016.

 

Execution of Cost Savings Program – We continue to identify areas to improve property level and consolidated margins through operating and cost efficiencies and exercising financial discipline throughout the company without impacting the guest experience. In addition to cost savings relating to duplicative executive compensation, legal and accounting fees and other corporate expenses that have been eliminated as a result of our acquisitions, we have achieved savings in marketing, food and beverage costs, selling, general and administrative expenses, and other operating departments as a result of operating efficiencies and purchasing power of the combined Eldorado organization.

 

Property Enhancement Capital Expenditures – Property enhancement initiatives continued throughout 2016 and into 2017. In 2015 and 2016, major projects included the opening of Brew Brothers at Presque Isle Downs and Scioto Downs along with a second smoking patio at Scioto Downs.

Our master capital plan initiated in 2016 at Eldorado Reno, Silver Legacy and Circus Reno (the “Tri-Properties”) continued throughout 2017. As of December 31, 2017, we have completed upgrades to nearly 1,000 hotel rooms and suites, updated food and beverage operations across the facilities with eight new or redesigned restaurants, cafes or bars, renovated the Carnival Midway, created new public spaces in all three properties and opened a new poker room and sports book. 

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

With the completion of our acquisition of Isle, we continue to evaluate capital improvement plans across the newly acquired properties and plan upgrades to more than 1,200 hotel rooms and add a spa at our Black Hawk properties and Brew Brothers branded outlets at certain Midwest properties in 2018.

 

Circus Reno/Silver Legacy Purchase In conjunction with the acquisition of the Reno properties in November 2015, we paid $80.2 million in cash, comprised of the $72.5 million purchase price plus $7.7 million in estimated working capital adjustments and the assumption of the amounts outstanding under Silver Legacy’s senior secured term loan facility. An additional $0.5 million was subsequently paid representing the final working capital adjustment. We funded the purchase price for our acquisition of the Reno properties and repaid the borrowings outstanding under the Silver Legacy credit facility using a portion of the proceeds from the sale of our 7% senior notes, borrowings under our revolving credit facility and cash on hand. We recorded a $35.6 million gain related to the valuation of our pre-acquisition investment in the Silver Legacy Joint Venture and incurred acquisition costs totaling $2.5 million in 2015. We incurred an additional $0.6 million in acquisition charges in 2016. In 2015, we also expensed fees totaling $0.6 million related to our equity offering initially intended to fund our

30


 

 

acquisition of the Reno properties. These fees were expensed as a result of our election to fund the final component of our acquisition of the Reno properties with existing revolver capacity in lieu of an equity offering.

 

New Regulation Effective January 1, 2016, the Ohio Lottery Commission enacted new regulation which resulted in the establishment of a $1.0 million progressive slot liability and a corresponding decrease in net slot win for the year ended December 31, 2016. The changes are non-cash and related to jackpots established in prior years. The net non-cash impact to Scioto Down’s gaming revenues and operating income was $1.0 million and $0.6 million for the year ended December 31, 2016, respectively.

Results of Operations

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

 

 

 

Year Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

Change %

 

 

 

 

2017

 

 

2016

 

 

2015

 

 

2017 vs 2016

 

 

 

2016 vs 2015

 

 

Net revenues

 

$

 

1,473,504

 

 

$

 

892,896

 

 

$

 

719,784

 

 

 

65.0

 

%

 

 

24.1

 

%

Operating income

 

 

 

94,869

 

 

 

 

89,118

 

 

 

 

72,516

 

 

 

6.5

 

%

 

 

22.9

 

%

Net income

 

 

 

73,940

 

 

 

 

24,802

 

 

 

 

114,183

 

 

 

198.1

 

%

 

 

(78.3

)

%

 

Operating Results.  Isle contributed $599.6 million of net revenues from the date we acquired Isle through December 31, 2017 consisting primarily of gaming revenues. Including the incremental Isle net operating revenues, net revenues increased 65.0% for the year ended December 31, 2017 compared to 2016. Excluding incremental Isle net revenues, net revenues declined 2.1% for the year ended December 31, 2017 compared to 2016 primarily due to decreased revenues associated with severe weather during the first and third quarters of 2017.

Net revenues increased 24.1% in 2016 compared to 2015 primarily due to incremental revenues attributable to the acquisition of the Reno properties. These increases in net revenues were partially offset by decreases in net revenues in the South and East segments, which were mainly driven by declines at Mountaineer, in 2016 compared to 2015 due to lower casino revenues, attributable to a competitive opening in one of our feeder markets.

Operating income increased 6.5% for the year ended December 31, 2017 compared to 2016. This increase was primarily due to $82.3 million of incremental operating income contributed by Isle for the period from the date we acquired Isle through December 31, 2017 and a $20.0 million deposit recorded as operating income in conjunction with the termination of the sale our Lake Charles property. These increases were partially offset by the $83.6 million increase in transaction expenses associated with our acquisition of Isle and the $38.0 million impairment charge recorded in 2017 to reduce the carrying value of goodwill and/or trade names related to our Lake Charles, Lula and Vicksburg reporting units.

Operating income increased 22.9% in 2016 compared to 2015 due to higher net revenues combined with improved operating margins associated with company-wide cost savings initiatives and property enhancement capital expenditures. These increases in operating income were partially offset by incremental depreciation expense resulting from the acquisition of the Reno properties along with higher acquisition costs associated with our acquisition of Isle which was announced in September of 2016.

Net income increased 198.1% in 2017 compared to 2016 primarily due to the $112.4 million net adjustment to our deferred income tax benefit for the year ending December 31, 2017 as a result of the aforementioned corporate tax rate reduction due to the Tax Act, combined with the other factors impacting operating income. This increase was partially offset by higher interest expense resulting from the issuance of new debt and the loss on the early retirement of debt recorded in 2017.

Net income decreased 78.3% in 2016 compared to 2015 despite the increase in operating income. This decline was primarily driven by a $35.6 million gain related to the valuation of the Silver Legacy Joint Venture in conjunction with the acquisition of the Reno properties combined with a $69.6 million benefit for income taxes recorded in 2015. Additionally, net income in 2016 was impacted by transaction expenses totaling $9.2 million, primarily related to our acquisition of Isle, a $0.8 million loss on the sale and disposal of a building and equipment related to the closure of a detached fitness center facility at Mountaineer and incremental depreciation associated with assets purchased in the acquisition of the Reno properties. These declines in net income were partially offset by a $10.6 million decrease in interest expense in 2016 resulting from our refinancing in July 2015 and significant debt reductions throughout 2016.

 

31


 

Net Revenues and Operating Income

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

 

 

 

Net Revenues for the Year Ended December 31,

 

 

Operating Income (Loss) for the Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

 

2017

 

 

2016

 

 

2015

 

West

 

$

 

405,202

 

 

$

 

321,922

 

 

$

 

127,802

 

 

$

 

66,329

 

 

$

 

41,620

 

 

$

 

13,989

 

Midwest

 

 

 

268,385

 

 

 

 

 

 

 

 

 

 

 

 

62,051

 

 

 

 

 

 

 

 

 

South

 

 

 

336,709

 

 

 

 

131,496

 

 

 

 

136,342

 

 

 

 

3,671

 

 

 

 

23,378

 

 

 

 

21,423

 

East

 

 

 

462,702

 

 

 

 

439,478

 

 

 

 

455,640

 

 

 

 

67,968

 

 

 

 

53,610

 

 

 

 

56,491

 

Corporate

 

 

 

506

 

 

 

 

 

 

 

 

 

 

 

 

(105,150

)

 

 

 

(29,490

)

 

 

 

(19,387

)

Total

 

$

 

1,473,504

 

 

$

 

892,896

 

 

$

 

719,784

 

 

$

 

94,869

 

 

$

 

89,118

 

 

$

 

72,516

 

32


 

Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016

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

 

 

 

Year Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

2016

 

 

Variance

 

 

Percent

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and Pari-Mutuel Commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

250,463

 

 

$

 

173,439

 

 

$

 

77,024

 

 

 

44.4

 

%

Midwest

 

 

 

249,268

 

 

 

 

 

 

 

 

249,268

 

 

 

100.0

 

%

South

 

 

 

312,727

 

 

 

 

121,046

 

 

 

 

191,681

 

 

 

158.4

 

%

East

 

 

 

430,216

 

 

 

 

407,128

 

 

 

 

23,088

 

 

 

5.7

 

%

Total Gaming and Pari-Mutuel Commissions

 

 

 

1,242,674

 

 

 

 

701,613

 

 

 

 

541,061

 

 

 

77.1

 

%

Non-gaming:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

 

 

211,000

 

 

 

 

193,529

 

 

 

 

17,471

 

 

 

9.0

 

%

Midwest

 

 

 

37,642

 

 

 

 

 

 

 

 

37,642

 

 

 

100.0

 

%

South

 

 

 

64,998

 

 

 

 

37,937

 

 

 

 

27,061

 

 

 

71.3

 

%

East

 

 

 

49,769

 

 

 

 

50,117

 

 

 

 

(348

)

 

 

(0.7

)

%

Corporate

 

 

 

506

 

 

 

 

 

 

 

 

506

 

 

 

100.0

 

%

Total Non-gaming

 

 

 

363,915

 

 

 

 

281,583

 

 

 

 

82,332

 

 

 

29.2

 

%

Total Gross Revenues

 

 

 

1,606,589

 

 

 

 

983,196

 

 

 

 

623,393

 

 

 

63.4

 

%

Promotional allowances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

 

 

(56,261

)

 

 

 

(45,046

)

 

 

 

(11,215

)

 

 

24.9

 

%

Midwest

 

 

 

(18,525

)

 

 

 

 

 

 

 

(18,525

)

 

 

100.0

 

%

South

 

 

 

(41,016

)

 

 

 

(27,487

)

 

 

 

(13,529

)

 

 

49.2

 

%

East

 

 

 

(17,283

)

 

 

 

(17,767

)

 

 

 

484

 

 

 

(2.7

)

%

Total Promotional Allowances

 

 

 

(133,085

)

 

 

 

(90,300

)

 

 

 

(42,785

)

 

 

47.4

 

%

Total Net Revenues

 

 

 

1,473,504

 

 

 

 

892,896

 

 

 

 

580,608

 

 

 

65.0

 

%

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and Pari-Mutuel Commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

 

 

107,644

 

 

 

 

79,019

 

 

 

 

28,625

 

 

 

36.2

 

%

Midwest

 

 

 

110,897

 

 

 

 

 

 

 

 

110,897

 

 

 

100.0

 

%

South

 

 

 

164,012

 

 

 

 

66,459

 

 

 

 

97,553

 

 

 

146.8

 

%

East

 

 

 

269,318

 

 

 

 

254,634

 

 

 

 

14,684

 

 

 

5.8

 

%

Total Gaming and Pari-Mutuel Commissions

 

 

 

651,871

 

 

 

 

400,112

 

 

 

 

251,759

 

 

 

62.9

 

%

Non-gaming

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

 

 

101,914

 

 

 

 

102,063

 

 

 

 

(149

)

 

 

(0.1

)

%

Midwest

 

 

 

12,203

 

 

 

 

 

 

 

 

12,203

 

 

 

100.0

 

%

South

 

 

 

18,560

 

 

 

 

7,333

 

 

 

 

11,227

 

 

 

153.1

 

%

East

 

 

 

22,358

 

 

 

 

30,149

 

 

 

 

(7,791

)

 

 

(25.8

)

%

Total Non-gaming

 

 

 

155,035

 

 

 

 

139,545

 

 

 

 

15,490

 

 

 

11.1

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing and promotions

 

 

 

82,525

 

 

 

 

40,600

 

 

 

 

41,925

 

 

 

103.3

 

%

General and administrative

 

 

 

241,095

 

 

 

 

130,172

 

 

 

 

110,923

 

 

 

85.2

 

%

Corporate

 

 

 

30,739

 

 

 

 

19,880

 

 

 

 

10,859

 

 

 

54.6

 

%

Impairment charges

 

 

 

38,016

 

 

 

 

 

 

 

 

38,016

 

 

 

100.0

 

%

Depreciation and amortization

 

 

 

105,891

 

 

 

 

63,449

 

 

 

 

42,442

 

 

 

66.9

 

%

Total Operating Expenses

 

$

 

1,305,172

 

 

$

 

793,758

 

 

$

 

511,414

 

 

 

64.4

 

%

 

Gaming Revenues and Pari-Mutuel Commissions.  Isle contributed $558.2 million of gaming revenues and pari-mutuel commissions for the period from the date we acquired Isle through December 31, 2017 resulting in an increase of 77.1% for the year ended December 31, 2017 compared to 2016.

33


 

Excluding incremental Isle gaming revenues and pari-mutuel commissions of $558.2 million, gaming revenues declined 2.5% for the year ended December 31, 2017 compared to 2016 primarily due to a decrease in gaming revenues across all segments. The decline in the West segment was mainly attributable to decreases in visitor traffic due to severe weather the northern Nevada region experienced throughout the first quarter of 2017 that resulted in limited access from our main feeder markets combined with the absence of a major bowling tournament in the Reno market. Additionally, reductions in gaming volume driven by decreased high-end play, the continued weakness in the energy sector and historically lower table games hold percentage impacted the Shreveport market and severe weather in the third quarter of 2017 negatively impacted the South segment in 2017. Efforts to eliminate unprofitable gaming play via reductions in marketing promotions and incentives across the properties also contributed to the declines in casino volume and positively impacted margins across all segments.

Non-gaming Revenues.  Isle contributed $91.7 million of non-gaming revenues for the period from the date we acquired Isle through December 31, 2017 resulting in an increase of 29.2% over 2016.

Excluding incremental Isle non-gaming revenues of $91.7 million, non-gaming revenues decreased 3.3% for the year ended December 31, 2017 compared to 2016. The West segment declined for the year ended December 31, 2017 compared to 2016 principally due to lower hotel, food and beverage revenues resulting from reduced customer traffic due to fewer convention room nights, severe weather in the northern Nevada region throughout the first quarter of 2017 and the absence of a major bowling tournament during 2017. The South segment decrease in non-gaming revenues for the year ended December 31, 2017 compared to 2016 was primarily due to decreased food and beverage revenues associated with revisions to marketing strategies resulting in fewer complimentary food offers and severe weather negatively impacting visitation in 2017. Non-gaming revenues in the East segment decreased for the year ended December 31, 2017 compared to 2016 primarily due to decreased food and beverage revenues resulting from reductions in complimentary food offers and the consolidation of restaurants in an effort to maximize capacity utilization.

Promotional Allowances.  Promotional allowances, expressed as a percentage of gaming revenues and pari-mutuel commissions, decreased to 10.7% for the year ended December 31, 2017 compared to 12.9% in 2016. This decline was primarily due to strategic revisions to promotional offers across all segments combined with the incremental revenues contributed by the Isle properties, which historically have lower promotional allowances as a percentage of gaming revenues.

Gaming Expenses and Pari-Mutuel Commissions.  Isle contributed $269.5 million of gaming expenses and pari-mutuel commissions for the period from the date we acquired Isle through December 31, 2017 resulting in an increase of 62.9% over 2016.

Excluding incremental Isle gaming expenses and pari-mutuel commissions, gaming expenses and pari-mutuel commissions decreased 4.1% for the year ended December 31, 2017 compared to 2016 primarily due to decreases in gaming volume combined with savings initiatives targeted at reducing variable expenses along with continued synergies related to the integration of the Reno properties in the West segment. Additionally, successful efforts to control costs and maximize departmental profit across all segments also drove the decline in expenses during the current period.

Non-gaming Expenses. Isle contributed $30.1 million of non-gaming expenses for the period from the date we acquired Isle through December 31, 2017 resulting in an increase of 11.1% over 2016.

Excluding incremental Isle non-gaming expenses, non-gaming expenses decreased 11.8% for the year ended December 31, 2017 compared to 2016 in conjunction with non-gaming revenue declines and successful efforts to control costs and maximize profit across all segments.

Marketing and Promotions Expenses.  Isle contributed $35.8 million of marketing and promotions expense for the period from the date we acquired Isle through December 31, 2017 resulting in an increase of 103.3% over 2016.

Excluding incremental Isle marketing and promotions expenses, consolidated marketing and promotions expense increased 15.1% for the year ended December 31, 2017 compared to 2016. This increase was primarily attributable to marketing promotional costs associated with casino initiatives that are charged to this category to provide consistency among properties following our acquisition of Isle.

General and Administrative Expenses.  Isle contributed $113.6 million of general and administrative expense for the period from the date we acquired Isle through December 31, 2017 resulting in an increase of 85.2% over 2016.  

Excluding incremental Isle general and administrative expenses, consolidated general and administrative expenses decreased 1.4% for the year ended December 31, 2017 compared to 2016. Savings associated with lower property and general liability insurance costs were partially offset by higher expenses associated with information systems maintenance contracts and professional services. These incremental costs resulted from information technology infrastructure projects targeted at consolidating systems for future savings and efficiencies.

34


 

 

Corporate Expenses.  For the year ended December 31, 2017 compared to 2016, corporate expenses increased due to payroll and other expenses associated with additional corporate expenses driven by growth related to the Isle acquisition. Also, the increase was the result of higher stock compensation expense for the year ended December 31, 2017 compared to 2016 due to the three-year vesting schedule associated with our long-term incentive plan established in 2015 resulting in three years of grants and related expense in 2017 versus two years of grants and related expense in 2016.

Impairment Charges. During the fourth quarter of 2017, we conducted annual impairment tests of our intangible assets. Based on less than expected operating performance and projected future operating results, it was determined that the value of goodwill and/or trade names associated with our Lake Charles, Vicksburg and Lula reporting units were impaired resulting in impairment charges totaling $38.0 million ($34.9 million related to goodwill and $3.1 million related to trade names) recorded in the current year.

Depreciation and Amortization Expense.  Isle contributed $47.1 million of depreciation expense for the period from the date we acquired Isle through December 31, 2017 resulting in an increase of 66.9% over 2016.  

Excluding incremental Isle depreciation and amortization expense, depreciation and amortization expense decreased 7.3% for the year ended December 31, 2017 compared to 2016 mainly due to lower depreciation in all segments due to assets becoming fully depreciated.

Benefit (Provision) for Income Taxes.  As further explained below in “Critical Accounting Policies – Income Taxes,” on December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act. The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate from 35% to 21%. In connection with our initial analysis of the impact of the Tax Act, for certain of our net deferred tax liabilities, we have recorded a decrease of $112.4 million, net of the related change in valuation allowance, with a corresponding net adjustment to deferred income tax benefit for the year ending December 31, 2017 as a result of the corporate rate reduction.

 

35


 

Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015

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

 

 

 

Year Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

 

2015

 

 

Variance

 

 

Percent

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and Pari-Mutuel Commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

173,439

 

 

$

 

74,626

 

 

$

 

98,813

 

 

 

132.4

 

%

Midwest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

%

South

 

 

 

121,046

 

 

 

 

125,371

 

 

 

 

(4,325

)

 

 

(3.4

)

%

East

 

 

 

407,128

 

 

 

 

423,261

 

 

 

 

(16,133

)

 

 

(3.8

)

%

Total Gaming and Pari-Mutuel Commissions

 

 

 

701,613

 

 

 

 

623,258

 

 

 

 

78,355

 

 

 

12.6

 

%

Non-gaming:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

 

 

193,529

 

 

 

 

72,214

 

 

 

 

121,315

 

 

 

168.0

 

%

Midwest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

%

South

 

 

 

37,937

 

 

 

 

37,273

 

 

 

 

664

 

 

 

1.8

 

%

East

 

 

 

50,117

 

 

 

 

51,796

 

 

 

 

(1,679

)

 

 

(3.2

)

%

Total Non-gaming

 

 

 

281,583

 

 

 

 

161,283

 

 

 

 

120,300

 

 

 

74.6

 

%

Total Gross Revenues

 

 

 

983,196

 

 

 

 

784,541

 

 

 

 

198,655

 

 

 

25.3

 

%

Promotional allowances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

 

 

(45,046

)

 

 

 

(19,038

)

 

 

 

(26,008

)

 

 

136.6

 

%

Midwest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

%

South

 

 

 

(27,487

)

 

 

 

(26,302

)

 

 

 

(1,185

)

 

 

4.5

 

%

East

 

 

 

(17,767

)

 

 

 

(19,417

)

 

 

 

1,650

 

 

 

(8.5

)

%

Total Promotional Allowances

 

 

 

(90,300

)

 

 

 

(64,757

)

 

 

 

(25,543

)

 

 

39.4

 

%

Total Net Revenues

 

 

 

892,896

 

 

 

 

719,784

 

 

 

 

173,112

 

 

 

24.1

 

%

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and Pari-Mutuel Commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

 

 

79,019

 

 

 

 

32,908

 

 

 

 

46,111

 

 

 

140.1

 

%

Midwest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

%

South

 

 

 

66,459

 

 

 

 

69,826

 

 

 

 

(3,367

)

 

 

(4.8

)

%

East

 

 

 

254,634

 

 

 

 

264,811

 

 

 

 

(10,177

)

 

 

(3.8

)

%

Total Gaming and Pari-Mutuel Commissions

 

 

 

400,112

 

 

 

 

367,545

 

 

 

 

32,567

 

 

 

8.9

 

%

Non-gaming

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

 

 

102,063

 

 

 

 

41,798

 

 

 

 

60,265

 

 

 

144.2

 

%

Midwest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

%

South

 

 

 

7,333

 

 

 

 

8,134

 

 

 

 

(801

)

 

 

(9.8

)

%

East

 

 

 

30,149

 

 

 

 

29,306

 

 

 

 

843

 

 

 

2.9

 

%

Total Non-gaming

 

 

 

139,545

 

 

 

 

79,238

 

 

 

 

60,307

 

 

 

76.1

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing and promotions

 

 

 

40,600

 

 

 

 

31,227

 

 

 

 

9,373

 

 

 

30.0

 

%

General and administrative

 

 

 

130,172

 

 

 

 

96,870

 

 

 

 

33,302

 

 

 

34.4

 

%

Corporate

 

 

 

19,880

 

 

 

 

16,469

 

 

 

 

3,411

 

 

 

20.7

 

%

Depreciation and amortization

 

 

 

63,449

 

 

 

 

56,921

 

 

 

 

6,528

 

 

 

11.5

 

%

Total Operating Expenses

 

$

 

793,758

 

 

$

 

648,270

 

 

$

 

145,488

 

 

 

22.4

 

%

 

Gaming Revenues and Pari-Mutuel Commissions.  West gaming revenues increased 132.4% in 2016 compared to 2015 primarily due to incremental gaming revenues attributable to the acquisition of the Reno properties combined with improvements in gaming revenues at Eldorado Reno. Gaming revenues in the South segment decreased 3.4% in 2016 compared to 2015 due to declines in casino volume primarily due to decreased high limit play and the continued weakness in the energy sector negatively impacting the Shreveport market. Gaming revenues and pari-mutuel commissions in the East segment declined 3.8% in 2016 compared to 2015 mainly due to lower gaming revenues at Mountaineer associated with the smoking ban that has negatively impacted the property’s operations. This decrease was partially offset by continued improvements in gaming revenues at Scioto Downs in 2016 compared to 2015, despite the $1.0 million impact of the progressive liability change related to prior years during the first quarter of 2016.

36


 

Non-gaming Revenues.  Non-gaming revenues increased 168.0% in 2016 compared to 2015 due to incremental non-gaming revenues consisting of food, beverage, hotel, entertainment, retail and other revenues in the West segment primarily as a result of the acquisition of the Reno properties combined with an increase in non-gaming revenues at Eldorado Reno. The South segment’s non-gaming revenues increased 1.8% in 2016 compared to 2015 mainly due to higher food and beverage revenues due to selective menu price increases and higher beverage complimentaries. The East segment posted a decrease in non-gaming revenues primarily due to the declines resulting from strategic changes in promotional offers along with additional volume declines at Mountaineer associated with the smoking ban impact. These decreases were partially offset by incremental non-gaming revenues at Scioto Downs in 2016 compared to 2015 attributable to the opening of The Brew Brothers in October 2015.

Promotional Allowances.  Promotional allowances, expressed as a percentage of gaming revenues and pari-mutuel commissions, increased to 12.9% in 2016 compared to 10.4% in 2015. In 2016, West promotional allowances, as a percentage of gaming revenues remained relatively flat to 2015 at 26.0%. South promotional allowances, as a percentage of gaming revenues, increased to 22.7% in 2016 from 21.0% in 2015 in conjunction with higher beverage complimentaries. The East segment’s promotional allowances in 2016 declined to 4.4% as a percentage of the segment’s gaming revenues and pari-mutuel commissions compared to 4.6% in 2015. Reductions in promotional allowances, as a percentage of gaming revenues and pari-mutuel commissions in the East segment, were due to continued strategic revisions to promotional offers in an effort to increase margins and maximize profitability.

Gaming Expenses and Pari-Mutuel Commissions.  West gaming expenses increased 140.1% in 2016 compared to 2015 primarily due to incremental gaming expenses as a result of the acquisition of the Reno properties along with an increase in gaming expenses at Eldorado Reno in conjunction with increased gaming revenues. South gaming expenses decreased 4.8% in 2016 compared to 2015 as a result of lower gaming revenues combined with efforts to reduce variable operating costs. The East segment’s gaming expenses and pari-mutuel commissions declined 3.8% in 2016 compared to 2015 primarily due lower gaming expenses commensurate with decreased gaming revenues.

Non-gaming Expenses. West non-gaming expenses increased 144.2% in 2016 compared to 2015. This growth was driven by higher West non-gaming expenses due to incremental expenses associated with the acquisition of the Reno properties. Non-gaming expenses in the South segment declined 9.8% mainly due to successful efforts to control costs while the East segment’s non-gaming expenses increased 2.9% in 2016 compared to 2015 as a result of incremental volume generated by the addition of The Brew Brothers at Scioto Downs in October 2015.

Marketing and Promotions Expenses.  Consolidated marketing and promotions expense increased 30.0% in 2016 compared to 2015. This increase was primarily attributable to incremental expenses in the West segment associated with the acquisition of the Reno properties along with higher expenses associated with a shift in promotional spend in the East segment. These increases in the East segment were offset by a decline in the South segment due to efforts to reduce advertising and promotional costs to maximize profitability.

General and Administrative Expenses.  Total general and administrative expenses increased 34.4% in 2016 compared to 2015 primarily due to incremental expenses in the West segment resulting from the operation of the properties purchased in the acquisition of the Reno properties offset by declines in the South and East segments due to continued efforts to decrease variable expenses via cost savings initiatives.

Corporate Expenses.  Corporate expenses totaled $19.9 million in 2016 compared to $16.5 million in 2015. This increase was partially due to higher payroll related expenditures at the corporate level subsequent to the acquisition of the Reno properties in addition to an executive team restructuring that took place during the first quarter of 2016. This restructuring resulted in the reallocation of property executive management to corporate in order to more fully utilize their skills across defined regions. This increase was partially offset by declines in general and administrative costs at the property level in 2016 compared to 2015. Additionally, $1.5 million of severance costs were recorded in 2016 along with $0.8 million of additional stock-based compensation expense as a result of severance related restricted stock units becoming fully vested in 2016. Also, stock compensation expense was higher for in 2016 compared to 2015 due to our three year vesting schedule associated with our long-term incentive plan established in 2015 resulting in two years of grants expensed in 2016 versus one year of grants expensed in 2015.

Depreciation and Amortization Expense.  Total depreciation and amortization expense increased 11.5% in 2016 compared to 2015 mainly due to additional depreciation expense associated with acquired assets in conjunction with the acquisition of the Reno properties. The West, South and East segments contributed $20.2 million, $7.9 million and $34.9 million, respectively, of depreciation and amortization expense in 2016 compared to $9.5 million, $7.6 million and $39.3 million in 2015, respectively.

37


 

Supplemental Unaudited Presentation of Consolidated Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) for the Years Ended December 31, 2017 and 2016

Adjusted EBITDA (defined below), a non-GAAP financial measure, has been presented as a supplemental disclosure because it is a widely used measure of performance and basis for valuation of companies in our industry and we believe that this non-GAAP supplemental information will be helpful in understanding the Company’s ongoing operating results. Adjusted EBITDA represents operating income (loss) before depreciation and amortization, stock based compensation, transaction expenses, S-1 expenses, severance expense, income related to the termination of the Lake Charles sale, costs associated with the terminated Lake Charles sale, impairment charges, equity in income of unconsolidated affiliates, (gain) loss on the sale or disposal of property and equipment, and other regulatory gaming assessments, including the impact of the change in regulatory reporting requirements, to the extent that such items existed in the periods presented. Adjusted EBITDA is not a measure of performance or liquidity calculated in accordance with accounting principles generally accepted in the United States (“US GAAP”), is unaudited and should not be considered an alternative to, or more meaningful than, net income (loss) as an indicator of our operating performance. Uses of cash flows that are not reflected in Adjusted EBITDA include capital expenditures, interest payments, income taxes, debt principal repayments and certain regulatory gaming assessments, which can be significant. As a result, Adjusted EBITDA should not be considered as a measure of our liquidity. Other companies that provide EBITDA information may calculate EBITDA differently than we do. The definition of Adjusted EBITDA may not be the same as the definitions used in any of our debt agreements.

38


 

The following table summarizes our Adjusted EBITDA for our operating segments for the years ended December 31, 2017 and 2016, in addition to reconciling Adjusted EBITDA to operating income (loss) in accordance with US GAAP (unaudited, in thousands):

 

 

 

Year Ended December 31, 2017

 

 

 

Operating

Income (Loss)

 

 

Depreciation and Amortization

 

 

Stock-Based Compensation

 

 

Transaction Expenses (5)

 

 

Other (6)

 

 

Adjusted

EBITDA

 

Excluding Pre-Acquisition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

66,329

 

 

$

 

26,950

 

 

$

 

182

 

 

$

 

 

 

$

 

364

 

 

$

 

93,825

 

Midwest

 

 

 

62,051

 

 

 

 

20,997

 

 

 

 

210

 

 

 

 

 

 

 

 

193

 

 

 

 

83,451

 

South

 

 

 

3,671

 

 

 

 

25,307

 

 

 

 

147

 

 

 

 

 

 

 

 

41,144

 

 

 

 

70,269

 

East

 

 

 

67,968

 

 

 

 

30,517

 

 

 

 

14

 

 

 

 

 

 

 

 

369

 

 

 

 

98,868

 

Corporate and Other

 

 

 

(105,150

)

 

 

 

2,120

 

 

 

 

5,769

 

 

 

 

92,777

 

 

 

 

(19,689

)

 

 

 

(24,173

)

Total Excluding Pre-Acquisition

 

$

 

94,869

 

 

$

 

105,891

 

 

$

 

6,322

 

 

$

 

92,777

 

 

$

 

22,381

 

 

$

 

322,240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-Acquisition (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

9,525

 

 

$

 

3,694

 

 

$

 

8

 

 

$

 

 

 

$

 

4

 

 

$

 

13,231

 

Midwest

 

 

 

34,819

 

 

 

 

11,952

 

 

 

 

51

 

 

 

 

 

 

 

 

34

 

 

 

 

46,856

 

South

 

 

 

25,086

 

 

 

 

5,693

 

 

 

 

35

 

 

 

 

 

 

 

 

184

 

 

 

 

30,998

 

East

 

 

 

(1,072

)

 

 

 

952

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(120

)

Corporate and Other

 

 

 

(8,811

)

 

 

 

371

 

 

 

 

1,631

 

 

 

 

286

 

 

 

 

527

 

 

 

 

(5,996

)

Total Pre-Acquisition

 

$

 

59,547

 

 

$

 

22,662

 

 

$

 

1,725

 

 

$

 

286

 

 

$

 

749

 

 

$

 

84,969

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Including Pre-Acquisition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

75,854

 

 

$

 

30,644

 

 

$

 

190

 

 

$

 

 

 

$

 

368

 

 

$

 

107,056

 

Midwest

 

 

 

96,870

 

 

 

 

32,949

 

 

 

 

261

 

 

 

 

 

 

 

 

227

 

 

 

 

130,307

 

South

 

 

 

28,757

 

 

 

 

31,000

 

 

 

 

182

 

 

 

 

 

 

 

 

41,328

 

 

 

 

101,267

 

East

 

 

 

66,896

 

 

 

 

31,469

 

 

 

 

14

 

 

 

 

 

 

 

 

369

 

 

 

 

98,748

 

Corporate and Other

 

 

 

(113,961

)

 

 

 

2,491

 

 

 

 

7,400

 

 

 

 

93,063

 

 

 

 

(19,162

)

 

 

 

(30,169

)

Total Including Pre-Acquisition (2)

 

$

 

154,416

 

 

$

 

128,553

 

 

$

 

8,047

 

 

$

 

93,063

 

 

$

 

23,130

 

 

$

 

407,209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2016

 

 

 

Operating

Income (Loss)

 

 

Depreciation and Amortization

 

 

Stock-Based Compensation

 

 

Transaction Expenses (5)

 

 

Other (6)

 

 

Adjusted

EBITDA

 

Excluding Pre-Acquisition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

41,620

 

 

$

 

20,220

 

 

$

 

 

 

$

 

 

 

$

 

493

 

 

$

 

62,333

 

Midwest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

South

 

 

 

23,378

 

 

 

 

7,861

 

 

 

 

 

 

 

 

 

 

 

 

(41

)

 

 

 

31,198

 

East

 

 

 

53,610

 

 

 

 

34,887

 

 

 

 

 

 

 

 

 

 

 

 

1,338

 

 

 

 

89,835

 

Corporate and Other

 

 

 

(29,490

)

 

 

 

481

 

 

 

 

3,341

 

 

 

 

9,182

 

 

 

 

1,406

 

 

 

 

(15,080

)

Total Excluding Pre-Acquisition

 

$

 

89,118

 

 

$

 

63,449

 

 

$

 

3,341

 

 

$

 

9,182

 

 

$

 

3,196

 

 

$

 

168,286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-Acquisition (3):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

25,682

 

 

$

 

8,901

 

 

$

 

38

 

 

$

 

 

 

$

 

 

 

$

 

34,621

 

Midwest

 

 

 

84,265

 

 

 

 

38,720

 

 

 

 

166

 

 

 

 

 

 

 

 

(247

)

 

 

 

122,904

 

South

 

 

 

49,112

 

 

 

 

23,793

 

 

 

 

118

 

 

 

 

 

 

 

 

533

 

 

 

 

73,556

 

East

 

 

 

(4,687

)

 

 

 

3,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,122

)

Corporate and Other

 

 

 

(34,213

)

 

 

 

1,319

 

 

 

 

4,670

 

 

 

 

3,852

 

 

 

 

870

 

 

 

 

(23,502

)

Total Pre-Acquisition

 

$

 

120,159

 

 

$

 

76,298

 

 

$

 

4,992

 

 

$

 

3,852

 

 

$

 

1,156

 

 

$

 

206,457

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Including Pre-Acquisition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

67,302

 

 

$

 

29,121

 

 

$

 

38

 

 

$

 

 

 

$

 

493

 

 

$

 

96,954

 

Midwest

 

 

 

84,265

 

 

 

 

38,720

 

 

 

 

166

 

 

 

 

 

 

 

 

(247

)

 

 

 

122,904

 

South

 

 

 

72,490

 

 

 

 

31,654

 

 

 

 

118

 

 

 

 

 

 

 

 

492

 

 

 

 

104,754

 

East (4)

 

 

 

48,923

 

 

 

 

38,452

 

 

 

 

 

 

 

 

 

 

 

 

1,338

 

 

 

 

88,713

 

Corporate and Other

 

 

 

(63,703

)

 

 

 

1,800

 

 

 

 

8,011

 

 

 

 

13,034

 

 

 

 

2,276

 

 

 

 

(38,582

)

Total Including Pre-Acquisition (2)

 

$

 

209,277

 

 

$

 

139,747

 

 

$

 

8,333

 

 

$

 

13,034

 

 

$

 

4,352

 

 

$

 

374,743

 

 

39


 

(1)

Figures for Isle are the four months ended April 30, 2017, the day before the we acquired Isle on May 1, 2017. We report our financial results on a calendar fiscal year. Prior to our acquisition of Isle, Isle’s fiscal year typically ended on the last Sunday in April. Isle’s fiscal 2017 and 2016 were 52-week years, which commenced on April 25, 2016 and April 27, 2015, respectively. Such figures were prepared by us to reflect Isle’s unaudited consolidated historical net revenues and Adjusted EBITDA for periods corresponding to our fiscal quarterly calendar. Such figures are based on the unaudited internal financial statements and have not been reviewed by our auditors and do not conform to GAAP.

(2)

Total figures for 2016 and 2017 include combined results of operations for Isle and us for periods preceding the date that we acquired Isle. Such presentation does not conform with GAAP or the Securities and Exchange Commission rules for pro forma presentation; however, we believe that the additional financial information will be helpful to investors in comparing current results with results of prior periods. This is non-GAAP data and should not be considered a substitute for data prepared in accordance with GAAP, but should be viewed in addition to the results of operations reported by us.

(3)

Figures are for Isle for the year ended December 31, 2016. Such figures were prepared by us to reflect Isle’s unaudited consolidated historical net revenues, operating income and Adjusted EBITDA for periods corresponding to our fiscal quarterly calendar. Such figures are based on the unaudited internal financial statements and have not been reviewed by our auditors and do not conform to GAAP.

(4)

Effective January 1, 2016, the Ohio Lottery Commission enacted a regulatory change which resulted in the establishment of a $1.0 million progressive slot liability and a corresponding decrease in net slot win during the first quarter of 2016. The changes are non-cash and related primarily to prior years. The net non-cash impact to Adjusted EBITDA was $0.6 million for the year ended December 31, 2016.

(5)

Transaction expenses represent costs related to the acquisition of Isle for the year ended December 31, 2017. Transaction expenses for the year ended December 31, 2016 represent costs related to the acquisitions of Isle and the Reno properties and S-1 expenses.

(6)

Other is comprised of severance expense, income totaling $20.0 million related to the termination of the Lake Charles sale, costs totaling $2.8 million associated with the termination of the Lake Charles sale, $38.0 million in impairment charges, (gain) loss on sale or disposal of property and equipment, equity in income of unconsolidated affiliate and other regulatory gaming assessments, including the item listed in footnote (4) above.

Liquidity and Capital Resources

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

Our primary sources of liquidity and capital resources have been existing cash, cash flow from operations, borrowings under our revolving credit facility and proceeds from the issuance of debt securities. We closed on our acquisition of Isle on May 1, 2017 and paid $552.0 million in cash consideration on our acquisition of Isle, refinanced the outstanding Isle indebtedness and paid acquisition expenses.

Our cash requirements can fluctuate significantly depending on our decisions with respect to business acquisitions or dispositions and strategic capital investments to maintain the quality of our properties. We expect that our primary capital requirements going forward will relate to the operation and maintenance of our properties and servicing our outstanding indebtedness. In 2018, we plan to spend $150.0 million on capital expenditures and $115.4 million to pay cash interest on our outstanding indebtedness. We expect that cash generated from operations will be sufficient to fund our operations and capital requirements, and service our outstanding indebtedness for the next twelve months.

At December 31, 2017, we had consolidated cash and cash equivalents of $134.6 million. At December 31, 2016, we had consolidated cash and cash equivalents of $61.0 million. This increase in cash was primarily related to cash acquired in our acquisition of Isle.

Operating Cash Flow.  In 2017, cash flows provided by operating activities totaled $130.2 million compared to $97.6 million in 2016. The increase in operating cash was primarily due to incremental operating cash generated by the acquired Isle properties offset by transaction expenses associated with our acquisition of Isle combined with changes in the balance sheet accounts in the normal course of business.

In 2016, we generated cash flows from operating activities of $97.6 million as compared to $56.7 million in 2015. The increase in operating cash was primarily associated with improvements in operations along with incremental cash flow associated with the acquisition of the Reno properties, the refinancing of our debt resulting in lower interest expense and various changes in the balance sheet accounts in the normal course of business.

40


 

Investing Cash Flow and Capital Expenditures.  Net cash flows used in investing activities totaled $1.4 billion in 2017 compared to $41.1 million in 2016. Net cash flows used in investing activities in 2017 were primarily due to cash paid to acquire Isle in addition to $83.5 million in capital expenditures for various property enhancement and maintenance projects and equipment purchases partially offset by $0.4 million in reimbursements from West Virginia.

Net cash flows used in investing activities totaled $41.1 million in 2016 and primarily consisted of $47.4 million in capital expenditures for various property enhancement and maintenance projects and equipment purchases partially offset by West Virginia’s reimbursement of capital expenditures totaling $4.2 million.

Financing Cash Flow.  Net cash used for financing activities in 2017 totaled $1.4 billion and consisted mainly of the issuance of debt associated with our acquisition of Isle, the refinancing of our term loan and revolving credit facility in May 2017 and the issuance of additional 6% Senior Notes in September 2017. This increase was partially offset by net payments made on our credit facilities throughout 2017 and taxes paid related to net share settlements of equity awards associated with the Isle transaction.

Net cash used for financing activities in 2016 totaled $73.7 million and consisted primarily of net payments totaling $64.5 million on the revolving credit facility and $4.3 million payments under the term loan in 2016. Additionally, $4.3 million was paid in 2016 for debt issuance costs comprised of $3.6 million related to our acquisition of Isle and $0.7 million related to the acquisition of the Reno properties.

Debt Obligations

7% Senior Notes

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

On or after August 1, 2018, we may redeem all or a portion of the 7% Senior Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of the principal amount) set forth below plus accrued and unpaid interest and additional interest, if any, on the 7% Senior Notes redeemed, to the applicable redemption date, if redeemed during the twelve month period beginning on August 1 of the years indicated below:

 

Year

 

Percentage

 

 

2018

 

 

105.250

 

%

2019

 

 

103.500

 

%

2020

 

 

101.750

 

%

2021 and thereafter

 

 

100.000

 

%

 

Prior to August 1, 2018, we may redeem all or a portion of the 7% Senior Notes at a price equal to 100% of the 7% Senior Notes redeemed plus accrued and unpaid interest to the redemption date, plus a make-whole premium. At any time prior to August 1, 2018, we are also entitled to redeem up to 35% of the original aggregate principal amount of the 7% Senior Notes with proceeds of certain equity financings at a redemption price equal to 107% of the principal amount of the 7% Senior Notes redeemed, plus accrued and unpaid interest. If we experience certain change of control events (as defined in the 7% Senior Notes Indenture), we must offer to repurchase the 7% Senior Notes at 101% of their principal amount, plus accrued and unpaid interest to the applicable repurchase date. If we sell asset under certain circumstances and does not use the proceeds for specified purposes, we must offer to repurchase the 7% Senior Notes at 100% of their principal amount, plus accrued and unpaid interest to the applicable repurchase date. The 7% Senior Notes are subject to redemption imposed by gaming laws and regulations of applicable gaming regulatory authorities.

The 7% Senior Notes Indenture contains certain covenants limiting, among other things, our ability and the ability of our subsidiaries (other than its unrestricted subsidiaries) to:

 

pay dividends or distributions or make certain other restricted payments or investments;

 

incur or guarantee additional indebtedness or issue disqualified stock or create subordinated indebtedness that is not subordinated to the 7% Senior Notes or the guarantees of the 7% Senior Notes;

 

create liens;

41


 

 

transfer and sell assets;

 

merge, consolidate, or sell, transfer or otherwise dispose of all or substantially all of our assets;

 

enter into certain transactions with affiliates;

 

engage in lines of business other than our core business and related businesses; and

 

create restrictions on dividends or other payments by restricted subsidiaries.

These covenants are subject to a number of exceptions and qualifications as set forth in the 7% Senior Notes Indenture. The 7% Senior Notes Indenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on such 7% Senior Notes to be declared due and payable. As of December 31, 2017, we were in compliance with all of the covenants under the 7% Senior Notes Indenture relating to the 7% Senior Notes.

6% Senior Notes

On March 29, 2017, Eagle II Acquisition Company LLC (“Eagle II”), our wholly-owned subsidiary, issued $375.0 million aggregate principal amount of 6% Senior Notes due 2025 (the “6% Senior Notes”) pursuant to an indenture, dated as of March 29, 2017 (the “6% Senior Notes Indenture”), between Eagle II and U.S. Bank, National Association, as Trustee. The 6% Senior Notes will mature on April 1, 2025, with interest payable semi-annually in arrears on April 1 and October 1, commencing October 1, 2017. The proceeds of the offering, and additional funds in the amount of $1.9 million in respect of interest expected to be accrued on the 6% Senior Notes, were placed in escrow pending satisfaction of certain conditions, including consummation of our acquisition of Isle. In connection with the consummation of our acquisition of Isle on May 1, 2017, the escrowed funds were released and we assumed Eagle II’s obligations under the 6% Senior Notes and the 6% Senior Notes Indenture and certain of our subsidiaries (including Isle and certain of its subsidiaries) executed guarantees of our obligations under the 6% Senior Notes.

On September 13, 2017, we issued an additional $500.0 million principal amount of the 6% Senior Notes at an issue price equal to 105.5% of the principal amount of the 6% Senior Notes. The additional notes were issued pursuant to the 6% Senior Notes Indenture that governs the 6% Senior Notes. We used the proceeds of the offering to repay $78.0 million of outstanding borrowings under the revolving credit facility and used the remainder to repay $444.5 million outstanding borrowings under the term loan facility and related accrued interest. As a result of the offering and retirement of existing debt, we recognized a loss of $11.1 million during the year ended December 31, 2017.

On or after April 1, 2020, we may redeem all or a portion of the 6% Senior Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of the principal amount) set forth below plus accrued and unpaid interest and additional interest, if any, on the 6% Senior Notes redeemed, to the applicable redemption date, if redeemed during the 12-month period beginning on April 1 of the years indicated below:

 

Year

 

Percentage

 

 

2020

 

 

104.500

 

%

2021

 

 

103.000

 

%

2022

 

 

101.500

 

%

2023 and thereafter

 

 

100.000

 

%

 

Prior to April 1, 2020, we may redeem all or a portion of the 6% Senior Notes at a price equal to 100% of the 6% Senior Notes redeemed plus accrued and unpaid interest to the redemption date, plus a make-whole premium. At any time prior to April 1, 2020, we are also entitled to redeem up to 35% of the original aggregate principal amount of the 6% Senior Notes with proceeds of certain equity financings at a redemption price equal to 106% of the principal amount of the 6% Senior Notes redeemed, plus accrued and unpaid interest. If we experience certain change of control events (as defined in the 6% Senior Notes Indenture), we must offer to repurchase the 6% Senior Notes at 101% of their principal amount, plus accrued and unpaid interest to the applicable repurchase date. If we sell assets under certain circumstances and do not use the proceeds for specified purposes, we must offer to repurchase the 6% Senior Notes at 100% of their principal amount, plus accrued and unpaid interest to the applicable repurchase date.

The 6% Senior Notes are subject to redemption imposed by gaming laws and regulations of applicable gaming regulatory authorities.

The 6% Senior Notes Indenture contains certain covenants limiting, among other things, our ability and the ability of our subsidiaries (other than its unrestricted subsidiaries) to:

 

pay dividends or distributions or make certain other restricted payments or investments;

 

incur or guarantee additional indebtedness or issue disqualified stock or create subordinated indebtedness that is not subordinated to the 6% Senior Notes or the guarantees of the 6% Senior Notes;

42


 

 

create liens;

 

transfer and sell assets;

 

merge, consolidate, or sell, transfer or otherwise dispose of all or substantially all of our assets;

 

enter into certain transactions with affiliates;

 

engage in lines of business other than our core business and related businesses; and

 

create restrictions on dividends or other payments by restricted subsidiaries.

These covenants are subject to a number of exceptions and qualifications as set forth in the 6% Senior Notes Indenture. The 6% Senior Notes Indenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on such 6% Senior Notes to be declared due and payable. As of December 31, 2017, we were in compliance with all of the covenants under the 6% Senior Notes Indenture relating to the 6% Senior Notes.

Credit Facility

On July 23, 2015, we entered into a new $425.0 million seven year term loan and a $150.0 million five year revolving credit facility.

The term loan bore interest at a rate per annum of, at our option, either (x) LIBOR plus 3.25%, with a LIBOR floor of 1.0%, or (y) a base rate plus 2.25%. Borrowings under the 2015 revolving credit facility bore interest at a rate per annum of, at our option, either (x) LIBOR plus a spread ranging from 2.5% to 3.25% or (y) a base rate plus a spread ranging from 1.5% to 2.25%, in each case with the spread determined based on our total leverage ratio. Additionally, we paid a commitment fee on the unused portion of the 2015 revolving credit facility not being utilized in the amount of 0.50% per annum.

On May 1, 2017, all of the outstanding amounts under our 2015 credit facility were repaid with proceeds of borrowings under the new credit facility and the 2015 credit facility was terminated.

New Credit Facility

On April 17, 2017, Eagle II entered into a new credit agreement by and among Eagle II, as initial borrower, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto dated as of April 17, 2017, consisting of a $1.45 billion term loan facility and a $300.0 million revolving credit facility, which was undrawn at closing. The proceeds of the new term loan facility, and additional funds in the amount of $4.5 million in respect of interest expected to be accrued on the new term loan facility, were placed in escrow pending satisfaction of certain conditions, including consummation of our acquisition of Isle. In connection with the consummation of our acquisition of Isle on May 1, 2017, the escrowed funds were released and we assumed Eagle II’s obligations under the new credit facility and certain of our subsidiaries (including Isle and certain of its subsidiaries) executed guarantees of our obligations under the new credit facility.

As of December 31, 2017, we had $956.8 million outstanding on the new term loan. There were no borrowings outstanding under the new revolving credit facility as of December 31, 2017. We had $291.6 million of available borrowing capacity, after consideration of $8.4 million in outstanding letters of credit, under our new revolving credit facility as of December 31, 2017. At December 31, 2017, the weighted average interest rate on the new term loan was 3.6%, and the weighted average interest rate on the new revolving credit facility was 4.0% based upon the weighted average interest rate of borrowings outstanding during 2017.

We applied the net proceeds of the new term loan facility and borrowings under the new revolving credit facility totaling $135 million, together with the proceeds of the 6% Senior Notes and cash on hand, to (i) pay the cash portion of the consideration payable in our acquisition of Isle, (ii) refinance all of the debt outstanding under Isle’s existing credit facility, (iii) redeem or otherwise repurchase all of Isle’s outstanding 5.875% Senior Notes due 2021 and 8.875% Senior Subordinated Notes due 2020, (iv) repay all amounts outstanding under our 2015 credit facility and (v) pay fees and costs associated with our acquisition of Isle and such financing transactions.

Our obligations under the new revolving credit facility will mature on April 17, 2022. Our obligations under the new term loan facility will mature on April 17, 2024. We were required to make quarterly principal payments in an amount equal to $3.6 million on the new term loan facility on the last day of each fiscal quarter beginning on June 30, 2017. We satisfied this requirement as a result of the principal prepayment of $444.5 million on September 13, 2017 in conjunction with the issuance of the additional 6% Senior Notes. In addition, we are required to make mandatory payments of amounts outstanding under the new credit facility with the proceeds of certain casualty events, debt issuances, and asset sales and, depending on its consolidated total leverage ratio, we are required to apply a portion of its excess cash flow to repay amounts outstanding under the new credit facility.

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The interest rate per annum applicable to loans under the new revolving credit facility is, at our option, either (i) LIBOR plus a margin ranging from 1.75% to 2.50% or (ii) a base rate plus a margin ranging from 0.75% to 1.50%, which margin is based on our total leverage ratio. The interest rate per annum applicable to the loans under the new term loan facility is, at our option, either (i) LIBOR plus 2.25%, or (ii) a base rate plus 1.25%; provided, however, that in no event will LIBOR be less than zero or the base rate be less than 1.00% over the term of the new term loan facility or the new revolving credit facility. Additionally, we pay a commitment fee on the unused portion of the new revolving credit facility not being utilized in the amount of 0.50% per annum.

The new credit facility is secured by substantially all of our personal property assets and substantially all personal property assets of each subsidiary that guaranties the new credit facility (other than certain subsidiary guarantors designated as immaterial), whether owned on the closing date of the new credit facility or thereafter acquired, and mortgages on the real property and improvements owned or leased us or the new credit facility guarantors. The new credit facility is also secured by a pledge of all of the equity owned by us and the new credit facility guarantors (subject to certain gaming law restrictions). The credit agreement governing the new credit facility contains a number of customary covenants that, among other things, restrict, subject to certain exceptions, our ability and the ability of the new credit facility guarantors to incur additional indebtedness, create liens, engage in mergers, consolidations or asset dispositions, make distributions, make investments, loans or advances, engage in certain transactions with affiliates or subsidiaries or make capital expenditures.

The new credit facility contains a number of customary covenants that, among other things, restrict, subject to certain exceptions, our ability and the ability of the subsidiary guarantors to incur debt; create liens; engage in mergers, consolidations or asset dispositions; pay dividends or make distributions; make investments, loans or advances; engage in certain transactions with affiliates or subsidiaries; or modify their lines of business.

The new credit facility also includes certain financial covenants, including the requirements that we maintain throughout the term of the new credit facility and measured as of the end of each fiscal quarter, and solely with respect to loans under the new revolving credit facility, a maximum consolidated total leverage ratio of not more than 6.50 to 1.00 for the period beginning on the closing date and ending with the fiscal quarter ending December 31, 2018, 6.00 to 1.00 for the period beginning with the fiscal quarter beginning January 1, 2019 and ending with the fiscal quarter ending December 31, 2019, and 5.50 to 1.00 for the period beginning with the fiscal quarter beginning January 1, 2020 and thereafter. We will also be required to maintain an interest coverage ratio in an amount not less than 2.00 to 1.00 measured on the last day of each fiscal quarter beginning on the closing date, and ending with the fiscal quarter ending December 31, 2018, 2.50 to 1.00 for the period beginning with the fiscal quarter beginning January 1, 2019 and ending with the fiscal quarter ending December 31, 2019, and 2.75 to 1.00 for the period beginning with the fiscal quarter beginning January 1, 2020 and thereafter.

The new credit facility contains a number of customary events of default, including, among others, for the non-payment of principal, interest or other amounts, the inaccuracy of certain representations and warranties, the failure to perform or observe certain covenants, a cross default to our other indebtedness including the 6% Senior Notes and 7% Senior Notes, certain events of bankruptcy or insolvency; certain ERISA events, the invalidity of certain loan documents, certain changes of control and the loss of certain classes of licenses to conduct gaming. If any event of default occurs, the lenders under the new credit facility would be entitled to take various actions, including accelerating amounts outstanding thereunder and taking all actions permitted to be taken by a secured creditor. As of December 31, 2017, we were in compliance with the covenants under the new credit facility.

Contractual Commitments

The following table summarizes our estimated contractual payment obligations as of December 31, 2017:

 

 

 

 

 

 

 

 

Less than

 

 

 

 

 

 

 

 

 

 

 

 

More than

 

 

 

Total

 

 

1 year

 

 

1 - 3 years

 

 

3 - 5 years

 

 

5 years

 

 

 

(in millions)

 

Contractual cash obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt obligations(1)

 

$

 

2,210.2

 

 

$

 

0.6

 

 

$

 

0.6

 

 

$

 

0.3

 

 

$

 

2,208.7

 

Estimated interest payments on long-term debt(2)

 

 

 

773.4

 

 

 

 

115.4

 

 

 

 

230.8

 

 

 

 

235.0

 

 

 

 

192.2

 

Operating leases(3)

 

 

 

188.2

 

 

 

 

12.1

 

 

 

 

18.4

 

 

 

 

14.2

 

 

 

 

143.5

 

Gaming tax and license fees(4)

 

 

 

63.8

 

 

 

 

12.8

 

 

 

 

25.5

 

 

 

 

25.5

 

 

 

See note 3

 

Purchase and other contractual obligations

 

 

 

36.9

 

 

 

 

25.9

 

 

 

 

9.7

 

 

 

 

1.0

 

 

 

 

0.3

 

Minimum purse obligations(5)

 

 

 

10.5

 

 

 

 

10.5

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent earn-out payments(6)

 

 

 

0.5

 

 

 

 

0.1

 

 

 

 

0.2

 

 

 

 

0.2

 

 

 

 

 

Regulatory gaming assessments(7)

 

 

 

3.3

 

 

 

 

1.4

 

 

 

 

1.5

 

 

 

 

0.4

 

 

 

 

 

Total

 

$

 

3,286.8

 

 

$

 

178.8

 

 

$

 

286.7

 

 

$

 

276.6

 

 

$

 

2,544.7

 

 

(1)

These amounts are included in our consolidated balance sheets, which are included elsewhere in this report. See Note 9 to our consolidated financial statements for additional information about our debt and related matters.

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(2)

Estimated interest payments on long-term debt are based on LIBOR rates and principal amounts outstanding on our new credit facility at December 31, 2017.

(3)

Our operating lease obligations are described in Note 16 to our consolidated financial statements.

(4)

Includes an annual table gaming license fee of $2.5 million for Mountaineer which is due on July 1st of each year as long as Mountaineer operates table games. Includes our obligation for gaming taxes at Presque Isle Downs, which is set at a minimum of $10.0 million per year, as required by the Pennsylvania Gaming Control Board. Also includes our obligation at Presque Isle Downs, as the holder of a Category 1 license, to create a fund to be used for the improvement and maintenance of the backside area of the racetrack with an amount of not less than $250,000 or more than $1 million annually for a five-year period beginning in 2017.

(5)

Pursuant to an agreement with the Mountaineer Park Horsemen’s Benevolent and Protective Association, Inc. and/or in accordance with the West Virginia racing statute, Mountaineer is required to utilize its best efforts to conduct racing for a minimum of 210 days and pay average daily minimum purses established by Mountaineer prior to the first live racing date each year ($88,000 for 2017) for the term of the agreement, which expires on December 31, 2018.

(6)

In connection with the 2003 purchase of Scioto Downs, certain stockholders of Scioto Downs elected the option to receive cash and contingent earn‑out payments (“CEP Rights”) in lieu of all cash for their outstanding shares of Scioto Downs’ common stock. The triggering event occurred when Scioto Downs received its permanent VLT license in May 2012 and commenced gaming operations. As a result, we recorded a liability for the estimated ten year payout to the stockholders who elected to receive the CEP Rights. The future obligation was calculated based on Scioto Downs’ projected EBITDA for the ten calendar years beginning January 1, 2013.

(7)

These amounts are included in our consolidated balance sheets, which are included elsewhere in this report. See Note 16 to our consolidated financial statements for additional information regarding our regulatory gaming assessments.

The table above excludes certain commitments as of December 31, 2017, for which the timing of expenditures associated with such commitments is unknown, or contractual agreements have not been executed, or the guaranteed maximum price for such contractual agreements has not been agreed upon.

The repayment of our long‑term debt, which consists of indebtedness evidenced by the 6% Senior Notes, 7% Senior Notes and the new credit facility, is subject to acceleration upon the occurrence of an event of default under the indentures governing these obligations.

We routinely enter into operational contracts in the ordinary course of our business, including construction contracts for minor projects that are not material to our business or financial condition as a whole. Our commitments relating to these contracts are recognized as liabilities in our consolidated balance sheets when services are provided with respect to such contracts.

Off Balance Sheet Arrangements

We do not currently have any off balance sheet arrangements.

Inflation

We do not believe that inflation has had a significant impact on our revenues, results of operations or cash flows since inception.

Other Liquidity Matters

We are faced with certain contingencies involving litigation and environmental remediation and compliance. These commitments and contingencies are discussed in greater detail in “Part I, Item 3. Legal Proceedings” and Note 16 to our consolidated financial statements, both of which are included elsewhere in this report. In addition, new competition may have a material adverse effect on our revenues, and could have a similar adverse effect on our liquidity. See “Part I, Item 1A. Risk Factors—Risks Related to Our Business” which is included elsewhere in this report.

Critical Accounting Policies

Our significant accounting policies are included in Note 2 to our consolidated financial statements, which are included elsewhere in this report. These policies, along with the underlying assumptions and judgments made by our management in their application, have a significant impact on our consolidated financial statements. These judgments are subject to an inherent degree of uncertainty and actual results could differ from our estimates.

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Business Combinations

We applied the provisions of Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations,” in the accounting for the merger with MTR, acquisition of the Reno properties and our acquisition of Isle. It required us to recognize the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of their respective acquisition dates were measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed.

Accounting for business combinations required our management to make significant estimates and assumptions, including our estimate of intangible assets, such as gaming licenses, trade names and loyalty programs. Although we believe the assumptions and estimates made have been reasonable and appropriate, they are inherently uncertain. For our gaming license valuation, our properties estimated future cash flows were the primary assumption in the respective intangible valuations. Cash flow estimates included assumptions regarding factors such as recent and budgeted operating performance, net win per unit (revenue), patron visits and growth percentages. The growth percentages were developed considering general macroeconomic conditions as well as competitive impacts from current and anticipated competition through a review of customer market data, operating margins, and current regulatory, social and economic climates. The most significant of the assumptions used in the valuations included: (1) revenue growth/decline percentages; (2) discount rates; (3) effective income tax rates; (4) future terminal values and (5) capital expenditure assumptions. These assumptions were developed for each of our properties based on historical trends in the current competitive markets in which they operate, and projections of future performance and competition. The primary assumptions with respect to our trade names and loyalty program intangibles primary assumptions were selecting the appropriate royalty rates and cost estimates for replacement cost analyses.

In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the business combination date. We reevaluated these items quarterly based upon facts and circumstances that existed as of the business combination date with any adjustments to our preliminary estimates being recorded to goodwill if identified within the measurement period. Subsequent to the measurement period or our final determination of the tax allowance’s or contingency’s estimated value, whichever comes first, changes to these uncertain tax positions and tax related valuation allowances will affect our provision for income taxes in our consolidated statements of income and could have material impact on our results of operations and financial position.

Revenue Recognition

Gaming revenues consist of the net win from gaming activities, which is the difference between amounts wagered and amounts paid to winning patrons, and is recognized at the time wagers are made net of winning payouts to patrons. Base and progressive jackpots are accrued and charged to revenue at the time the obligation to pay the jackpot is established. Pari‑mutuel commissions consist of commissions earned from thoroughbred and harness racing, and importing of simulcast signals from other race tracks. Pari‑mutuel commissions are recognized at the time wagers are made. Such commissions are a designated portion of the wagering handle as determined by state racing commissions, and are shown net of the taxes assessed by state and local agencies, as well as purses and other contractual amounts paid to horsemen associations. We recognize revenues from fees earned through the exporting of simulcast signals to other race tracks at the time wagers are made. Such fees are based upon a predetermined percentage of handle as contracted with the other race tracks. Revenues from food and beverage are recognized at the time of sale and revenues from lodging are recognized on the date of stay. Other revenues are recorded at the time services are rendered or merchandise sold. We offer certain promotional allowances to our customers, including complimentary lodging, food and beverage, and promotional credits for free play on slot machines. The retail value of these promotional items is shown as a reduction in total revenues on our consolidated statements of income.

For information with respect to our adoption of ASU No. 2014-09, “Revenue from Contracts with Customers,” (Topic 606) effective January 1, 2018, see “Note 2, Summary of Significant Accounting Policies – Recently Issued Accounting Pronouncements”, in the notes to the consolidated financial statements.

Income Taxes

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

We were notified by the Internal Revenue Service in October of 2016 that its federal tax return for the year ended December 31, 2014 had been selected for examination. In September 2017, the Internal Revenue Service informed us that they completed the examination of the tax return and made no changes. However, we may be subject to tax audits in the future and the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner not consistent with our expectations, we would be required to adjust our provision for income taxes in the period such resolution occurs. While we believe our reported results are materially accurate, any significant adjustments could have a material adverse effect on our results of operations, cash flows and financial position.

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On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act. The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (3) creating a new limitation on deductible interest expense; (4) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; (5) bonus depreciation that will allow for full expensing of qualified property; and (6) limitations on the deductibility of certain executive compensation.  

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

In connection with our initial analysis of the impact of the Tax Act, for certain of our net deferred tax liabilities, we have recorded a decrease of $112.4 million, net of the related change in valuation allowance, with a corresponding net adjustment to deferred income tax benefit for the year ending December 31, 2017 as a result of the corporate rate reduction. For various reasons that are discussed more fully below, we have not completed our accounting for the income tax effects of certain elements of the Tax Act, therefore, we have made reasonable estimates of the effects of the elements for which our analysis is not yet complete.

While we have not yet completed all of the computations necessary or completed an inventory of our 2017 expenditures that qualify for immediate expensing, we have recorded a provisional benefit based on our current intent to fully expense all qualifying expenditures. This did not result in any significant change to our current income tax payable or in our deferred tax liabilities due to our federal and state net operating loss carry forwards.

For the year ended December 31, 2015, the difference between the effective rate and the statutory rate is attributable primarily to the release of a majority of the federal and related state valuation allowances on our deferred tax assets and the non-taxable gain on the fair value adjustment of a previously unconsolidated affiliate. We continue to provide for a valuation allowance against net federal and state deferred tax assets associated with non-operating land, the sale of which could result in capital losses that can only be offset against capital gains. As of December 31, 2015, we also continued to provide for a valuation allowance against net state deferred tax assets relating to operations in Pennsylvania and West Virginia. Management determined it was not more-likely-than-not that we will realize these net deferred tax assets.

For the year ended December 31, 2016, the difference between the effective rate and the statutory rate is attributable primarily to the release of a majority of the state valuation allowances on our West Virginia deferred tax assets and excess tax benefits on stock compensation under Accounting Standards Update 2016-09, Compensation – Stock Compensation, which we adopted effective the first quarter of 2016. We continue to provide for a valuation allowance against net federal and state deferred tax assets associated with non-operating land, the sale of which could result in capital losses that can only be offset against capital gains. As of December 31, 2016, we also continued to provide for a valuation allowance against net state deferred tax assets relating to operations in Pennsylvania. Management determined it was not more-likely-than-not that we will realize these net deferred tax assets.

For the year ended December 31, 2017, the difference between the effective rate and the statutory rate is attributable primarily to the impact of the Tax Act discussed more fully above, non-deductible asset impairment charges, non-deductible transaction costs incurred and changes in the effective state tax rate associated with the acquisition of Isle of Capri Casinos, Inc., and the release of the valuation allowance against certain Pennsylvania deferred tax assets. We continue to provide for a valuation allowance against net federal and state deferred tax assets associated with non-operating land, the sale of which could result in capital losses that can only be offset against capital gains. We also continue to provide for a valuation allowance against net state deferred tax assets relating to certain operations in Pennsylvania, Louisiana, Colorado and Iowa. Management determined it was not more-likely-than-not that we will realize these net deferred tax assets.

A valuation allowance is recognized if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax asset will not be realized. Management must analyze all available positive and negative evidence regarding realization of the deferred tax assets and make an assessment of the likelihood of sufficient future taxable income. For the year ended December 31, 2015, we were in a three-year cumulative income position and management concluded it is more-likely-than-not to realize its federal, Louisiana and City of Columbus, Ohio deferred tax assets, with the exception of non-operating land. For the year ended December 31, 2016, we remained in a three-year cumulative income position and management concluded it is more-likely-than-not to realize its federal, Louisiana, City of Columbus, Ohio and West Virginia deferred tax assets, with the exception of non-operating land. For the year ended December 31, 2017, we remained in a three-year cumulative income position and management concluded it is more-likely-than-not to realize its

47


 

federal, City of Columbus, Ohio, City of Kansas City, Missouri, West Virginia, Missouri and certain Pennsylvania, Colorado and Florida deferred tax assets, with the exception of non-operating land. We continue to provide for a valuation allowance against net state deferred tax assets relating to certain operations in Pennsylvania, Louisiana, Colorado and Iowa. Management determined it was not more-likely-than-not that we will realize these net deferred tax assets. We will continue to evaluate the realization of its deferred tax assets on a quarterly basis and make adjustments to its valuation allowance as appropriate.

For income tax purposes we amortize or depreciate certain assets that have been assigned an indefinite life for book purposes. The incremental amortization or depreciation deductions for income tax purposes result in an increase in certain deferred tax liabilities that cannot be used as a source of future taxable income for purposes of measuring our need for a valuation allowance against the net deferred tax assets. Therefore, we expect to record non cash deferred tax expense as we amortize these assets for tax purposes.

 

Under the applicable accounting standards, we may recognize the tax benefit from an uncertain tax position only if it is more‑likely‑than‑not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The accounting standards also provide guidance on de‑recognition, classification, interest and penalties on income taxes, accounting in interim periods and disclosure requirements for uncertain tax positions. We have recorded no liability associated with uncertain tax positions at December 31, 2017 and 2016.

Property and Equipment and Other Long‑Lived Assets

Property and equipment is recorded at cost, except for assets acquired in the Isle, Silver Legacy, Circus Reno and MTR Gaming acquisitions, which were adjusted for fair value under ASC 805 and are depreciated over their remaining estimated useful life or lease term. Judgments are made in determining estimated useful lives and salvage values of these assets. The accuracy of these estimates affects the amount of depreciation expense recognized in our financial results and whether we have a gain or loss on the disposal of assets. We review depreciation estimates and methods as new events occur, more experience is acquired, and additional information is obtained that would possibly change our current estimates.

Property, equipment and other long‑lived assets are assessed for impairment in accordance with ASC 360—Property, Plant, and Equipment. We evaluate our long‑lived assets periodically for impairment issues or, more frequently, whenever events or circumstances indicate that the carrying amount may not be recoverable. Recoverability of these assets is determined by comparing the net carrying value to the sum of the estimated future net undiscounted cash flows expected to be generated by these assets. The amount of impairment loss, if any, is measured by the difference between the net carrying value and the estimated fair value of the asset which is typically measured using a discounted cash flow model (Level 3 of the fair value hierarchy). For assets to be disposed of, impairment is recognized based on the lower of carrying value or fair value less costs of disposal, as estimated based on comparable asset sales, offers received, or a discounted cash flow model. Based on the results of our periodic reviews we have not recorded any long-lived assets impairment charges during the years ended December 31, 2017, 2016 and 2015.

For undeveloped properties, including non‑operating real properties, when indicators of impairment are present, properties are evaluated for impairment and losses are recorded when undiscounted cash flows estimated to be generated by an asset or market comparisons are less than the asset’s carrying amount. The amount of the impairment loss is calculated as the excess of the asset’s carrying value over its fair value, which is determined using a discounted cash flow analysis, management estimates or market comparisons. The fair value measurements employed for our impairment evaluations, which are subject to the assumptions and factors as previously discussed, were generally based on a review of comparable activities in the marketplace, which fall within Level 3 of the fair value hierarchy.

Goodwill and Other Indefinite‑lived Intangible Assets

Goodwill represents the excess of the purchase price paid over the fair value of the net assets of the acquired business. Intangible assets acquired in business combinations are recorded based upon their fair value at the date of acquisition. Goodwill and other indefinite‑lived intangible assets are reviewed for impairment annually, during the fourth quarter, or more frequently if events or changes in circumstances indicate that an asset might be impaired.

As a result of our annual impairment review, impairment charges totaling $34.9 million and $3.1 million related to goodwill and trade names, respectively, were recorded in 2017. The fair value measurements employed for our impairment evaluations, which are subject to the assumptions and factors as previously discussed, were generally based on a review of comparable activities in the marketplace, which fall within Level 3 of the fair value hierarchy

48


 

Goodwill is tested by comparing the carrying value of the reporting unit to its fair value. We estimate the fair value of the reporting unit utilizing income and market approaches. The income approach is based on projected future cash flow that is discounted to present value using factors that consider the timing and risk of the future cash flows. The market approach is based on our market capitalization at the testing date.

Our indefinite‑lived intangible assets consist of racing and gaming licenses and trade names and are evaluated for impairment annually by comparing the fair value of the asset to its carrying value. Any excess of carrying value over the fair value is recognized as an impairment within the consolidated statements of income in the period of review.

The gaming and racing licenses were valued in aggregate for each respective property, as these licenses are considered to be the most significant asset of the properties and the gaming licenses could not be obtained without holding the racing licenses. Therefore, a market participant would consider the licenses in aggregate. The fair value of the licenses is calculated using an excess earnings methodology, which is an income approach methodology that allocates the projected cash flows of the property to the gaming license intangible assets less charges for the use of the other identifiable assets of the property, including working capital, fixed assets, and other intangible assets. We believe this methodology is appropriate as the gaming licenses are the primary asset to the properties, the licenses are linked to each respective facility and it’s the lowest level at which discrete cash flows can be directly attributable to the assets. Under the gaming legislation applicable to our properties, licenses are property specific and can only be acquired if a buyer acquires the existing facility. Because existing licenses may not be acquired and transferred for use at a different facility, the estimated future cash flows of each of our properties was the primary assumption in the valuation of such property.

We value trade names using the relief‑from‑royalty method with royalty rates range from 0.5% ‑ 1.0%. Trade names recorded as part of the merger with MTR are amortized on a straight‑line basis over a 3.5 year useful life and the trade names recorded as part of our acquisition of Isle and acquisition of the Reno properties are not amortized (deemed indefinite-lived).

The loyalty programs were valued using a combination of a replacement cost and lost profits analysis and the loyalty programs are amortized on a straight‑line basis over a one- to three-year useful life.

Assessing goodwill and indefinite‑lived intangible assets for impairment is a process that requires significant judgment and involves detailed quantitative and qualitative business‑specific analysis and many individual assumptions which fluctuate between assessments. Our properties’ estimated future cash flows are a primary assumption in the respective impairment analyses. Unforeseen events, changes in circumstances and market conditions and material differences in estimates of future cash flows could negatively affect the fair value of our assets and result in an impairment charge, which could be material. Cash flow estimates include assumptions regarding factors such as recent and budgeted operating performance, net win per unit (revenue), patron visits, growth percentages which are developed considering general macroeconomic conditions as well as competitive impacts from current and anticipated competition through a review of customer market data, operating margins, and current regulatory, social and economic climates. These estimates could also be negatively impacted by changes in federal, state, or local regulations, economic downturns or developments and other market conditions affecting travel and access to the properties. The most significant of the assumptions used in our valuations include: (1) revenue growth/decline percentages; (2) discount rates; (3) effective income tax rates; (4) future terminal values and (5) capital expenditure assumptions. These assumptions were developed for each property based on historical trends, the current competitive markets in which they operate, and projections of future performance and competition.

We believe we have used reasonable estimates and assumptions to calculate the fair value of our goodwill reporting units and other indefinite‑lived intangible assets; however, these estimates and assumptions could be materially different from actual results. If actual market conditions are less favorable than those projected, or if events occur or circumstances change that would reduce the fair value of our licensing intangibles below the carrying value reflected on the consolidated balance sheet, we may be required to conduct an interim test or possibly recognize impairment charges, which may be material, in future periods.

Reserve for Uncollectible Accounts Receivable

We reserve an estimated amount for receivables that may not be collected. Methodologies for estimating bad debt reserves range from specific reserves to various percentages applied to aged receivables. Historical collection rates are considered, as are customer relationships, in determining specific reserves. As with many estimates, management must make judgments about potential actions by third parties in establishing and evaluating our reserves for bad debts.

49


 

Self‑Insurance Reserves

We are self‑insured for various levels of general liability, employee medical insurance coverage and workers’ compensation coverage. Insurance claims and reserves include accruals of estimated settlements for known claims, as well as accruals of estimates for claims incurred but not yet reported. We utilize independent consultants to assist management in its determination of estimated insurance liabilities. While the total cost of claims incurred depends on future developments, in managements’ opinion, recorded reserves are adequate to cover future claims payments. Self-insurance reserves for employee medical claims and workers’ compensations are included in accrued payroll and related on the consolidated balance sheets. Self‑insurance reserves for general liability claims are included in accrued other liabilities on the consolidated balance sheets.

Loyalty Program

We offer programs whereby our participating patrons can accumulate points for wagering that can be redeemed for credits for free play on slot machines, lodging, food and beverage, merchandise and in limited situations, cash. Based upon the estimated redemptions of loyalty program points, an estimated liability is established for the cost of redemption on earned but unredeemed points. The estimated cost of redemption utilizes estimates and assumptions of the mix of the various product offerings for which the points will be redeemed and costs of such product offerings. Changes in the programs, membership levels and redemption patterns of our participating patrons can impact this liability.

Litigation, Claims and Assessments

We utilize estimates for litigation, claims and assessments. These estimates are based on our knowledge and experience regarding current and past events, as well as assumptions about future events. If our assessment of such a matter should change, we may have to change the estimates, which may have an adverse effect on our financial position, results of operations or cash flows. Actual results could differ from these estimates.

Recently Issued Accounting Pronouncements

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 2, Summary of Significant Accounting PoliciesRecently Issued Accounting Pronouncements, in the notes to the consolidated financial statements.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. We are exposed to changes in interest rates primarily from variable rate long‑term debt arrangements. At December 31, 2017, interest on borrowings under our New Credit Facility was subject to fluctuation based on changes in short-term interest rates.

As of December 31, 2017, our long‑term variable‑rate borrowings totaled $956.8 million under the New Term Loan and represented approximately 43% of our long‑term debt. In conjunction with the issuance of $500 million of additional 6% Senior Notes and the retirement of variable rate debt in September 2017, this percentage declined from 54% as of December 31, 2016. During 2017, the weighted average interest rates on our variable and fixed rate debt were 3.8% and 6.3%, respectively.

The Company evaluates its exposure to market risk by monitoring interest rates in the marketplace and has, on occasion, utilized derivative financial instruments to help manage this risk. The Company does not utilize derivative financial instruments for trading purposes. There were no material quantitative changes in our market risk exposure, or how such risks are managed, for the year ended December 31, 2017.

The following table provides information as of December 31, 2017 about our debt obligations, including debt that is sensitive to changes in interest rates, and presents principal payments and related weighted-average interest rates by expected maturity dates. Implied forward rates should not be considered a predictor of actual future interest rates.

50


 

The scheduled maturities of our long-term debt outstanding for the years ending December 31 are as follows:

 

 

 

(in thousands)

 

 

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

Thereafter

 

 

Total

 

 

Fixed Rate Debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6% Senior Notes

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

875,000

 

 

$

 

875,000

 

 

7% Senior Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

375,000

 

 

 

 

375,000

 

 

Fixed Interest Rate

 

 

 

6.30

 

%

 

 

6.30

 

%

 

 

6.30

 

%

 

 

6.30

 

%

 

 

6.30

 

%

 

 

6.30

 

%

 

 

6.30

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable Rate Debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term Loan (1)

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

956,750

 

 

$

 

956,750

 

 

Average Interest Rate

 

 

 

3.77

 

%

 

 

3.77

 

%

 

 

3.77

 

%

 

 

3.77

 

%

 

 

3.77

 

%

 

 

3.77

 

%

 

 

3.77

 

%

 

(1)

Based upon the weighted average interest rate of borrowings outstanding on our new credit facility as of December 31, 2017. Borrowings under the new credit facility bear interest at a rate per annum of, at our option, either LIBOR or base rate plus an applicable spread.

 

As of December 31, 2017, borrowings outstanding under our new term loan were long-term variable-rate borrowings. Assuming a 100 basis-point increase in LIBOR (in the case of the new term loan, over the 1% floor specified in our credit agreement), our annual interest cost would change by $9.6 million based on gross amounts outstanding at December 31, 2017.

Item 8.

Financial Statements and Supplementary Data.

Our consolidated financial statements and notes to consolidated financial statements, including the report of Ernst & Young LLP thereon, are included at pages 68 through 118 of this Annual Report on Form 10‑K.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost‑benefit relationship of possible controls and procedures.

Management, under the supervision and with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of the end of the period covered by this Form 10-K Annual Report and as required by Rules 13a-15(b) and 15d-15(b) promulgated under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2017, at a reasonable assurance level.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) for Eldorado Resorts, Inc. and its subsidiaries.

51


 

This system is designed to provide reasonable assurance to the Company’s management regarding the reliability of financial reporting and preparation of consolidated financial statements for external purposes.

Management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated and assessed the effectiveness of our internal control over financial reporting as of the end of the period covered by this Form 10-K Annual Report based upon the framework set forth in the Internal Control-Integrated Framework issued in 2013 by the Committee of Sponsoring Organization of the Treadway Commission. Based on this evaluation and assessment, management believes that, as of December 31, 2017, our internal control over financial reporting was effective based on those criteria.

The Company completed its acquisition of Isle of Capri Casinos, Inc. (“Isle”) on May 1, 2017 (the “Isle Acquisition”). Since the Company has not yet fully incorporated the internal controls and procedures of Isle into the Company’s internal control over financial reporting, management excluded Isle from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017. The Isle Acquisition constituted 53% of total assets as of December 31, 2017, and 41% of net revenues for the year then ended.

Ernst & Young LLP, an independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting as of December 31, 2017, which report follows below.

Changes in Internal Control Over Financial Reporting

Except as noted below, during the quarter ended December 31, 2017, there were no significant changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On May 1, 2017, we completed the acquisition of Isle. See Part IV, Item 15, Financial Statement Schedules, Note 3: Isle Acquisition and Reno Acquisition and Preliminary Purchase Accounting, for a discussion of the acquisition and related financial data. The Company is in the process of integrating Isle and our internal control over financial reporting. As a result of these integration activities, certain controls will be evaluated and may be changed. Excluding the Isle Acquisition, there were no changes in our internal control over financial reporting that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.


52


 

Report of Independent Registered Public Accounting Firm


The Board of Directors and Stockholders

Eldorado Resorts, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Eldorado Resorts, Inc.’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Eldorado Resorts, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.  

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting included in Item 9A, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Isle of Capri Casinos, Inc., which is included in the 2017 consolidated financial statements of the Company and constituted 53% of total assets as of December 31, 2017 and 41% of net revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Isle of Capri Casinos, Inc.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Eldorado Resorts, Inc. as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and the financial statement schedule listed in the Index at Item 15 (a)(ii) of the Company and our report dated February 27, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting included in Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

53


 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Roseville, California
February 27, 2018

 

54


 

Item 9B.

Other Information.

Not applicable.

55


 

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

The information required by this Item is hereby incorporated by reference to our definitive Proxy Statement for our Annual Meeting of Stockholders (our “Proxy Statement”) to be filed with the Securities and Exchange Commission no later than April 30, 2018, pursuant to Regulation 14A under the Securities Act.

We have adopted a code of ethics and business conduct applicable to all directors and employees, including the Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer. The code of ethics and business conduct is posted on our website, http://www.eldoradoresorts.com (accessible through the “Corporate Governance” caption of the Investor Relations page) and a printed copy will be delivered on request by writing to the Corporate Secretary at Eldorado Resorts, Inc., c/o Corporate Secretary, 100 West Liberty Street, Suite 1150, Reno, NV 89501. We intend to satisfy the disclosure requirement regarding certain amendments to, or waivers from, provisions of its code of ethics and business conduct by posting such information on our website.

Item 11.

Executive Compensation.

The information required by this Item is hereby incorporated by reference to our Proxy Statement, to be filed with the Securities and Exchange Commission no later than April 30, 2018, pursuant to Regulation 14A under the Securities Act.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item is hereby incorporated by reference to our Proxy Statement, to be filed with the Securities and Exchange Commission no later than April 30, 2018, pursuant to Regulation 14A under the Securities Act.

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item is hereby incorporated by reference to our Proxy Statement, to be filed with the Securities and Exchange Commission no later than April 30, 2018, pursuant to Regulation 14A under the Securities Act.

Item 14.

Principal Accounting Fees and Services.

The information required by this Item is hereby incorporated by reference to our Proxy Statement, to be filed with the Securities and Exchange Commission no later than April 30, 2018, pursuant to Regulation 14A under the Securities Act.

56


 

PART IV

Item 15.  Financial Statement Schedules.

 

(a)(i) Financial Statements

 

Included in Part II of this Annual Report on Form 10‑K:

 

Report of Independent Registered Public Accounting Firm

 

Consolidated Balance Sheets as of December 31, 2017 and 2016

 

Consolidated Statements of Income for the Years Ended December 31, 2017, 2016 and 2015

 

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015

 

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2017, 2016 and 2015

 

Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015

 

Notes to Consolidated Financial Statements

 

(a)(ii) Financial Statement Schedule

 

Years Ended December 31, 2017, 2016 and 2015

 

Valuation and Qualifying Accounts

 

(a)(iii) Exhibits

 

 

57


 

EXHIBIT

NO.

 

ITEM TITLE

 

 

 

    2.1

 

Agreement and Plan of Merger by and among Isle of Capri Casinos, Inc., Eldorado Resorts, Inc., Eagle I Acquisition Corp. and Eagle II Acquisition Company LLC, dated as of September 19, 2016 (incorporated by reference to our Current Report on Form 8-K filed on September 22, 2016).

 

 

 

    3.1

 

Amended and Restated Articles of Incorporation (incorporated by reference to our Current Report on Form 8-K filed on September 19, 2014).

 

 

 

    3.2

 

Amended and Restated Bylaws (incorporated by reference to our Current Report on Form 8‑K filed on September 19, 2014).

 

 

 

    4.1

 

Specimen Stock Certificate of the Company (incorporated by reference to our Form S‑4/A filed on April 21, 2014).

 

 

 

    4.2

 

Indenture dated as of June 23, 2015, by and among Eldorado Resorts, Inc., the guarantors party thereto, U.S. Bank National Association, as Trustee, and Capital One, N.A., as Collateral Trustee, and Form of Note (incorporated by reference to our Current Report on Form 8-K filed on July 23, 2015).

 

 

 

    4.3

 

First Supplemental Indenture, dated as of December 15, 2015, by and among Eldorado Resorts, Inc., the guarantors party thereto and U.S. Bank National Association, as Trustee, under the 2023 Notes Indenture (incorporated by reference to our Registration Statement on Form S-4 filed on January 14, 2016).

 

 

 

    4.4

 

Second Supplemental Indenture, dated as of May 26, 2016, by and among Eldorado Resorts, Inc., the guarantors party thereto, and U.S. Bank National Association, as Trustee, under the 2023 Notes Indenture (incorporated by reference to our Registration Statement on Form S-4 filed on June 16, 2017).

 

 

 

    4.5

 

Third Supplemental Indenture, dated as of March 16, 2017, by and among Eldorado Resorts, Inc., the guarantors party thereto and U.S. Bank National Association, as Trustee, under the 2023 Notes Indenture (incorporated by reference to our Current Report on Form 8-K filed on March 22, 2017).

 

 

 

    4.6

 

Fourth Supplemental Indenture, dated as of May 1, 2017, by and among Eldorado Resorts, Inc., the guarantors party thereto and U.S. Bank National Association, as Trustee, under the 2023 Notes Indenture (incorporated by reference to our Current Report on Form 8-K filed on May 1, 2017).

 

 

 

    4.7

 

Indenture, dated as of March 29, 2017, by and between Isle of Capri Casinos LLC formerly known as Eagle II Acquisition Company LLC and U.S. Bank National Association (incorporated by reference to our Current Report on Form 8-K filed on March 29, 2017).

 

 

 

    4.8

 

Supplemental Indenture, dated as of May 1, 2017, by and among Eldorado Resorts, Inc., the guarantors party thereto and U.S. Bank National Association (incorporated by reference to our Current Report on Form 8-K filed on May 1, 2017).

 

 

 

  10.1

 

Agreement dated November 1, 2008 between Mountaineer Park, Inc. and Racetrack Employees Union Local No. 101 (incorporated by reference to the Annual Report of MTR Gaming Group, Inc. on Form 10‑K filed on March 16, 2009).

 

 

 

  10.2

 

Agreement dated December 29, 2009 by and between Mountaineer Park, Inc. and Mountaineer Park Horsemen’s Benevolent and Protective Association, Inc. (incorporated by reference to the Annual Report of MTR Gaming Group, Inc. on Form 10‑K filed on March 16, 2010).

 

 

 

  10.3

 

Agreement dated February 22, 2007 by and between Presque Isle Downs, Inc. and the Pennsylvania Horsemen’s Benevolent and Protective Association Inc. (incorporated by reference to the Annual Report of MTR Gaming Group, Inc. on Form 10‑K filed on April 2, 2007).

 

 

 

  10.4*

 

Executive Employment Agreement, dated as of January 17, 2018, by and between Eldorado Resorts, Inc. and Gary Carano (incorporated by reference to our Current Report on Form 8-K filed on January 22, 2018).

 

 

 

  10.5*

 

Executive Employment Agreement, dated as of January 17, 2018, by and between Eldorado Resorts, Inc. and Thomas Reeg (incorporated by reference to our Current Report on Form 8-K filed on January 22, 2018).

 

 

 

  10.6*

 

Executive Employment Agreement, dated as of January 17, 2018, by and between Eldorado Resorts, Inc. and Anthony Carano (incorporated by reference to our Current Report on Form 8-K filed on January 22, 2018).

58


 

EXHIBIT

NO.

 

ITEM TITLE

 

 

 

  10.7*

 

Executive Employment Agreement, dated as of January 17, 2018, by and between Eldorado Resorts, Inc. and Edmund L. Quatmann, Jr. (filed herewith).

 

 

 

  10.8*

 

2010 Long‑Term Incentive Plan (incorporated by reference to the Quarterly Report of MTR Gaming Group, Inc. on Form 10‑Q filed on August 9, 2010).

 

 

 

  10.9*

 

Form of Restricted Stock Unit Award Agreement for Non‑Employee Directors (2010 Long‑Term Incentive Plan) (incorporated by reference to the Quarterly Report of MTR Gaming Group, Inc. on Form 10‑Q filed on August 9, 2010).

 

 

 

  10.10*

 

Form of Nonqualified Stock Option Award Agreement (2010 Long‑Term Incentive Plan) (incorporated by reference to the Current Report of MTR Gaming Group, Inc. on Form 8‑K filed on February 3, 2011).

 

 

 

  10.11*

 

Form of Restricted Stock Unit Award Agreement (2010 Long‑Term Incentive Plan) (incorporated by reference to the Current Report of MTR Gaming Group, Inc. on Form 8‑K filed on February 3, 2011).

 

 

 

  10.12*

 

Form of Cash‑Based Performance Award Agreement (2010 Long‑Term Incentive Plan) (incorporated by reference to the Current Report of MTR Gaming Group, Inc. on Form 8‑K filed on February 3, 2011).

 

 

 

  10.13*

 

Eldorado Resorts, Inc. 2015 Equity Incentive Plan (incorporated herein by reference to Exhibit 4.3 to the Registration Statement on Form S-8 filed by Eldorado Resorts, Inc. on April 3, 2015 (File No. 333-203227)).

 

 

 

  10.14*

 

Form of Director Restricted Stock Unit Award Agreement pursuant to the Eldorado Resorts, Inc. 2015 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.28 to the Registration Statement on Form S-1 filed by Eldorado Resorts, Inc. on July 14, 2015 (File No. 333-205654)).

 

 

 

  10.15*

 

Form of Director Restricted Stock Unit Award Agreement pursuant to the Eldorado Resorts, Inc. 2015 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.29 to the Registration Statement on Form S-1 filed by Eldorado Resorts, Inc. on July 14, 2015 (File No. 333-205654)).

 

 

 

  10.16*

 

Form of Performance Stock Unit Award Agreement pursuant to the Eldorado Resorts, Inc. 2015 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.30 to the Registration Statement on Form S-1 filed by Eldorado Resorts, Inc. on July 14, 2015 (File No. 333-205654)).

 

 

 

  10.17

 

Ground Lease dated as of May 19, 1999 between City of Shreveport, as landlord, and Eldorado Casino Shreveport Joint Venture (formerly known as QNOV) as tenant (incorporated by reference to our Annual Report on Form 10‑K filed on March 16, 2015).

 

 

 

  10.18

 

First Amendment to Lease Agreement made and entered into as of August 13, 2012, by and between City of Shreveport, as landlord, and Eldorado Casino Shreveport Joint Venture (formerly known as QNOV) as tenant (incorporated by reference to our Annual Report on Form 10‑K filed on March 16, 2015).

 

 

 

  10.19

 

Lease between C, S & Y Associates, as lessor, and Eldorado Hotel Associates, as lessee, dated as of July 21, 1972 (incorporated by reference to our Annual Report on Form 10‑K filed on March 16, 2015).

 

 

 

  10.20

 

Addendum, dated as of March 20, 1973, to lease between C. S & Y Associates, as lessor, and Eldorado Hotel Associates, as lessee, dated as of July 21, 1972 (incorporated by reference to our Annual Report on Form 10‑K filed on March 16, 2015).

 

 

 

  10.21

 

Amendment, dated as of January 1, 1978, to lease between C. S. & Y. Associates, as lessor, and Eldorado Hotel Associates, as lessee, dated as of July 21, 1972 (incorporated by reference to our Annual Report on Form 10‑K filed on March 16, 2015).

 

 

 

  10.22

 

Amendment, dated as of January 31, 1985, to lease between C. S. & Y. Associates, as lessor, and Eldorado Hotel Associates, as lessee, dated as of July 21, 1972 (incorporated by reference to our Annual Report on Form 10‑K filed on March 16, 2015).

 

 

 

  10.23

 

Amendment, dated as of December 24, 1987, to lease between C. S. & Y. Associates, as lessor, and Eldorado Hotel Associates, as lessee, dated as of July 21, 1972 (incorporated by reference to our Annual Report on Form 10‑K filed on March 16, 2015).

59


 

EXHIBIT

NO.

 

ITEM TITLE

 

 

 

  10.24

 

Reimbursement and Indemnification Agreement and Lease Amendment, entered into as of March 24, 1994, by and between Eldorado Hotel Associates Limited Partnership, and CS&Y Associates (incorporated by reference to our Annual Report on Form 10‑K filed on March 16, 2015).

 

 

 

  10.25

 

Fourth Amendment, dated as of June 1, 2011, by and between Eldorado Resorts LLC and CS&Y Associates, to Reimbursement and Indemnification Agreement and Lease Amendment, entered into as of March 24, 1994, by and between Eldorado Hotel Associates Limited Partnership, and CS&Y Associates (incorporated by reference to our Annual Report on Form 10‑K filed on March 16, 2015).

 

 

 

  10.26

 

Credit Agreement, dated as of April 17, 2017, by and among Isle of Capri Casinos LLC (f/k/a Eagle II Acquisition Company LLC), the Lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to our Current Report on Form 8-K filed on April 17, 2017).

 

 

 

  10.27

 

Borrower Joinder and Assumption Agreement, dated as of May 1, 2017, by and among Eldorado Resorts, Inc., Isle of Capri Casinos LLC and JPMorgan Chase Bank, N.A. (incorporated by reference to our Current Report on Form 8-K filed on May 1, 2017).

 

 

 

  10.28

 

Guaranty Agreement, dated as of May 1, 2017, by and among the guarantors party thereto and JPMorgan Chase Bank, N.A. (incorporated by reference to our Current Report on Form 8-K filed on May 1, 2017).

 

 

 

  10.29

 

Amendment Agreement, dated as of August 15, 2017, by and between the Eldorado Resorts, Inc. and JPMorgan Chase, N.A. as Administrative Agent in connection with the Credit Agreement, dated as of April 17, 2017 (incorporated by reference to our Quarterly Report on Form 10-Q filed on November 7, 2017).

 

 

 

  10.30

 

Registration Rights Agreement, dated as of May 1, 2017, by and among Eldorado Resorts, Inc., Recreational Enterprises, Inc., GFIL Holdings, LLC and certain of its affiliates (incorporated by reference to our Current Report on Form 8-K filed on May 1, 2017).

 

 

 

  10.31*

 

Isle of Capri Casinos, Inc. Second Amended and Restated 2009 Long-Term Stock Incentive Plan (incorporated by reference to Isle of Capri Casinos, Inc.’s Current Report on Form 8-K filed on October 9, 2015).

 

 

 

  10.32*

 

Isle of Capri Casino, Inc. Form Stock Option Award Agreement (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on July 11, 2008).

 

 

 

  10.33*

 

Isle of Capri Casino, Inc. Form of Restricted Stock Award Agreement (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on June 25, 2009).

 

 

 

  10.34*

 

Isle of Capri Casino, Inc. Form of Performance Based Restricted Stock Unit Agreement (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on June 14, 2012).

 

 

 

  10.35*

 

Isle of Capri Casino, Inc. Form of Non-Qualified Stock Option Agreement (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on June 17, 2015).

 

 

 

  10.36*

 

Isle of Capri Casino, Inc. Form of Performance Stock Unit Agreement (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on June 17, 2015).

 

 

 

  10.37*

 

Isle of Capri Casino, Inc. Form of Restricted Stock Unit Agreement (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on June 17, 2015).

 

 

 

  10.38

 

Amended and Restated Lease, dated as of April 19, 1999, among Port Resources, Inc. and CRU, Inc., as landlords and St. Charles Gaming Company, Inc., as tenant (St. Charles) (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on July 2, 1999).

 

 

 

  10.39

 

Lease of property in Coahoma, Mississippi, dated as of November 16, 1993, by and among Roger Allen Johnson, Jr., Charles Bryant Johnson and Magnolia Lady, Inc. (incorporated by reference to Isle of Capri Casinos, Inc.’s Form S-4/A filed on June 19, 2002).

 

 

 

  10.40

 

Addendum to Lease, dated as of June 22, 1994, by and among Roger Allen Johnson, Jr., Charles Bryant Johnson and Magnolia Lady, Inc. (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on July 28, 2000).

60


 

EXHIBIT

NO.

 

ITEM TITLE

 

 

 

  10.41

 

Second addendum to Lease, dated as of October 17, 1995, by and among Roger Allen Johnson, Jr., Charles Bryant Johnson and Magnolia Lady, Inc. (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on July 28, 2000).

 

 

 

  10.42

 

Master Lease, dated as of July 18, 1997, by and between The City of Boonville, Missouri and IOC-Boonville, Inc. formerly known as Davis Gaming Boonville, Inc. (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on July 11, 2008).

 

 

 

  10.43

 

Amendment to Master Lease, dated as of April 19, 1999, by and between The City of Boonville, Missouri and IOC-Boonville, Inc. formerly known as Davis Gaming Boonville, Inc. (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on July 11, 2008).

 

 

 

  10.44

 

Second Amendment to Master Lease, dated as of September 17, 2001, by and between The City of Boonville, Missouri and IOC-Boonville, Inc. formerly known as Davis Gaming Boonville, Inc. (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on July 11, 2008).

 

 

 

  10.45

 

Third Amendment to Master Lease, dated as of November 19, 2001, by and between The City of Boonville, Missouri and IOC-Boonville, Inc. formerly known as Gold River's Boonville Resort, Inc. and Davis Gaming Boonville, Inc. (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on July 11, 2008).

 

 

 

  10.46

 

Amended and Restated Lease Agreement, dated as of August 21, 1995, by and between the Port Authority of Kansas City, Missouri and Tenant (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on June 25, 2009).

 

 

 

  10.47

 

First Amendment to Amended and Restated Lease Agreement, dated as of October 31, 1995, by and between the Port Authority of Kansas City, Missouri and Tenant (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on June 25, 2009).

 

 

 

  10.48

 

Second Amendment to Amended and Restated Lease Agreement, dated as of June 10, 1996, by and between the Port Authority of Kansas City, Missouri and Tenant (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on June 25, 2009).

 

 

 

  10.49

 

Assignment and Assumption Agreement (Lease Agreement), dated as of June 6, 2000, by and among Flamingo Hilton Riverboat Casino, LP, Isle of Capri Casinos, Inc. and IOC-Kansas City, Inc. (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on July 11, 2008).

 

 

 

  10.50

 

Lease and Agreement-Spring 1995, dated as of August 15, 1995, by and between Andrianakos Limited Liability Company and Isle of Capri Black Hawk, L.L.C. (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on July 11, 2008).

 

 

 

  10.51

 

Addendum to the Lease and Agreement-Spring 1995, dated as of April 4, 1996, by and between Andrianakos Limited Liability Company and Isle of Capri Black Hawk, L.L.C. (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on July 11, 2008).

 

 

 

  10.52

 

Second Addendum to the Lease and Agreement-Spring 1995, dated as of March 21, 2003, by and between Andrianakos Limited Liability Company and Isle of Capri Black Hawk, L.L.C. (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on July 11, 2008).

 

 

 

  10.53

 

Third Addendum to the Lease and Agreement-Spring 1995, dated as of April 22, 2003, by and between Andrianakos Limited Liability Company and Isle of Capri Black Hawk, L.L.C. (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on July 11, 2008).

 

 

 

  10.54

 

Fourth Addendum to the Lease and Agreement-Spring 1995, dated as of December 11, 2013, by and between Andrianakos Limited Liability Company and Isle of Capri Black Hawk, L.L.C. (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on June 23, 2014).

 

 

 

  10.55

 

Development Agreement, dated as of October 4, 2010, by and between IOC-Cape Girardeau, LLC and the City of Cape Girardeau, Missouri (incorporated by reference to Isle of Capri Casinos, Inc.’s Quarterly Report on Form 10-Q filed on December 3, 2010).

61


 

EXHIBIT

NO.

 

ITEM TITLE

 

 

 

  10.56

 

Amended and Restated Operator’s Contract, dated as of November 9, 2004, by and between Black Hawk County Gaming Association and IOC Black Hawk County, Inc. (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on June 23, 2014).

 

 

 

  10.57

 

Operator's Contract, dated as of August 11, 1994, by and between the Riverbend Regional Authority, Green Bridge Company, Bettendorf Riverfront Development Company, L.C., Lady Luck Gaming Corporation and Lady Luck Bettendorf, L.C. (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on June 23, 2014).

 

 

 

  10.58

 

Amendment to Operator's Contract, dated as of August 27, 1998, by and among Green Bridge Company, Bettendorf Riverfront Development Company, L.C., Lady Luck Gaming Corporation, Lady Luck Bettendorf, L.C. and Riverbend Regional Authority (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on June 23, 2014).

 

 

 

  10.59

 

Second Amendment to Operator's Contract, dated as of June 30, 2004, by and between Isle of Capri Bettendorf, L.C. and Scott County Regional Authority (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on June 23, 2014).

 

 

 

  10.60

 

Third Amendment to Operator's Contract, dated as of October 30, 2007, by and between Isle of Capri Bettendorf, L.C. and Scott County Regional Authority (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on June 23, 2014).

 

 

 

  10.61

 

Fourth Amendment to Operator's Contract, dated as of March 11, 2015, by and between Isle of Capri Bettendorf, L.C. and Scott County Regional Authority (incorporated by reference to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K filed on June 17, 2015).

 

 

 

  12.1

 

Statement of ratio of earnings to fixed charges (filed herewith).

 

 

 

  21.1

 

Subsidiaries of the Registrant (filed herewith).

 

 

 

  23.1

 

Consent of Ernst & Young LLP (filed herewith).

 

 

 

  31.1

 

Certification of Gary L. Carano pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002 (filed herewith).

 

 

 

  31.2

 

Certification of Thomas R. Reeg pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002 (filed herewith).

 

 

 

  32.1

 

Certification of Gary L. Carano in accordance with 18 U.S.C. Section 1350 (filed herewith).

 

 

 

  32.2

 

Certification of Thomas R. Reeg in accordance with 18 U.S.C. Section 1350 (filed herewith).

 

 

 

  99.1

 

Description of Governmental Regulations and Licensing (filed herewith).

 

 

 

  99.2

 

Audited consolidated financial statements of Circus and Eldorado Joint Venture, LLC, as of and for the years ended December��31, 2014 and 2013 (incorporated by reference to our Annual Report on Form 10‑K filed on March 15, 2016).

 

 

 

  99.3

 

Unaudited consolidated financial statements of Circus and Eldorado Joint Venture, LLC, as of November 23, 2015 and for the period January 1, 2015 through November 23, 2015 (incorporated by reference to our Annual Report on Form 10‑K filed on March 15, 2016).

 

 

 

101.1

 

XBRL Instance Document

 

 

 

101.2

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.3

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.4

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.5

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.6

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

*

Management contracts or compensatory plans or arrangements.

62


 

SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) 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.

 

 

ELDORADO RESORTS, INC.

 

 

 

 

By:

/s/ Gary L. Carano

Gary L. Carano

Chief Executive Officer

Dated: February 27, 2018

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature

 

Title

 

Date

 

 

 

 

 

/s/ Gary L. Carano

Gary L. Carano

 

Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)

 

February 27, 2018

 

 

 

 

 

/s/ Thomas R. Reeg

Thomas R. Reeg

 

President and Chief Financial Officer (Principal Financial Officer) and Director

 

February 27, 2018

 

 

 

 

 

/s/ Stephanie D. Lepori

Stephanie D. Lepori

 

Chief Accounting Officer (Principal Accounting Officer)

 

February 27, 2018

 

 

 

 

 

/s/ Bonnie Biumi

Bonnie Biumi

 

Director

 

February 27, 2018

 

 

 

 

 

/s/ Frank J. Fahrenkopf Jr.

Frank J. Fahrenkopf Jr.

 

Director

 

February 27, 2018

 

 

 

 

 

/s/ James B. Hawkins

James B. Hawkins

 

Director

 

February 27, 2018

 

 

 

 

 

/s/ Gregory J. Kozicz

Gregory J. Kozicz

 

Director

 

February 27, 2018

 

 

 

 

 

/s/ Michael E. Pegram

Michael E. Pegram

 

Director

 

February 27, 2018

 

 

 

 

 

/s/ David P. Tomick

David P. Tomick

 

Director

 

February 27, 2018

 

 

 

 

 

/s/ Roger P. Wagner

Roger P. Wagner

 

Director

 

February 27, 2018

 

63


 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF

ELDORADO RESORTS, INC.

 

64


 

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Eldorado Resorts, Inc.

 

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Eldorado Resorts, Inc. as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and the financial statement schedule listed in the Index at Item 15 (a)(ii) (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 27, 2018 expressed an unqualified opinion thereon.

 

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.  

 

/s/ Ernst & Young LLP


We have served as the Company’s auditor since 2011.

Roseville, California

February 27, 2018

65


 

ELDORADO RESORTS, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

 

 

 

December 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

ASSETS

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

134,596

 

 

$

 

61,029

 

Restricted cash

 

 

 

3,267

 

 

 

 

2,414

 

Marketable securities

 

 

 

17,631

 

 

 

 

 

Accounts receivable, net

 

 

 

45,797

 

 

 

 

14,694

 

Due from affiliates

 

 

 

243

 

 

 

 

 

Inventories

 

 

 

16,870

 

 

 

 

11,055

 

Prepaid income taxes

 

 

 

4,805

 

 

 

 

69

 

Prepaid expenses and other

 

 

 

27,823

 

 

 

 

12,492

 

Total current assets

 

 

 

251,032

 

 

 

 

101,753

 

PROPERTY AND EQUIPMENT, NET

 

 

 

1,502,817

 

 

 

 

612,342

 

GAMING LICENSES AND OTHER INTANGIBLES, NET

 

 

 

996,816

 

 

 

 

487,498

 

GOODWILL

 

 

 

747,106

 

 

 

 

66,826

 

NON-OPERATING REAL PROPERTY

 

 

 

18,069

 

 

 

 

14,219

 

OTHER ASSETS, NET

 

 

 

30,632

 

 

 

 

11,406

 

Total assets

 

$

 

3,546,472

 

 

$

 

1,294,044

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

 

615

 

 

$

 

4,545

 

Accounts payable

 

 

 

34,778

 

 

 

 

21,576

 

Due to affiliates

 

 

 

 

 

 

 

259

 

Accrued property, gaming and other taxes

 

 

 

43,212

 

 

 

 

18,790

 

Accrued payroll and related

 

 

 

53,330

 

 

 

 

14,588

 

Accrued interest

 

 

 

25,607

 

 

 

 

14,634

 

Income taxes payable

 

 

 

171

 

 

 

 

 

Accrued other liabilities

 

 

 

61,346

 

 

 

 

27,648

 

Total current liabilities

 

 

 

219,059

 

 

 

 

102,040

 

LONG-TERM DEBT, LESS CURRENT PORTION

 

 

 

2,189,578

 

 

 

 

795,881

 

DEFERRED INCOME TAXES

 

 

 

164,130

 

 

 

 

90,385

 

OTHER LONG-TERM LIABILITIES

 

 

 

28,579

 

 

 

 

7,287

 

Total liabilities

 

 

 

2,601,346

 

 

 

 

995,593

 

COMMITMENTS AND CONTINGENCIES (Note 16)

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

 

 

 

Common stock, 100,000,000 shares authorized, 76,825,966 and 47,105,744

   issued and outstanding, par value $0.00001 as of December 31, 2017 and

   2016, respectively

 

 

 

 

 

 

 

 

Paid-in capital

 

 

 

746,547

 

 

 

 

173,879

 

Retained earnings

 

 

 

198,500

 

 

 

 

124,560

 

Accumulated other comprehensive income

 

 

 

79

 

 

 

 

12

 

Total stockholders’ equity

 

 

 

945,126

 

 

 

 

298,451

 

Total liabilities and stockholders’ equity

 

$

 

3,546,472

 

 

$

 

1,294,044

 

 

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

66


 

ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share data)

 

 

 

For the Year Ended

 

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

 

1,228,540

 

 

$

 

693,013

 

 

$

 

614,227

 

Pari-mutuel commissions

 

 

 

14,134

 

 

 

 

8,600

 

 

 

 

9,031

 

Food and beverage

 

 

 

193,260

 

 

 

 

142,032

 

 

 

 

97,740

 

Hotel

 

 

 

119,095

 

 

 

 

94,312

 

 

 

 

37,466

 

Other

 

 

 

51,560

 

 

 

 

45,239

 

 

 

 

26,077

 

 

 

 

 

1,606,589

 

 

 

 

983,196

 

 

 

 

784,541

 

Less-promotional allowances

 

 

 

(133,085

)

 

 

 

(90,300

)

 

 

 

(64,757

)

Net operating revenues

 

 

 

1,473,504

 

 

 

 

892,896

 

 

 

 

719,784

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

 

638,362

 

 

 

 

390,325

 

 

 

 

357,572

 

Pari-mutuel commissions

 

 

 

13,509

 

 

 

 

9,787

 

 

 

 

9,973

 

Food and beverage

 

 

 

94,723

 

 

 

 

81,878

 

 

 

 

52,606

 

Hotel

 

 

 

34,282

 

 

 

 

30,746

 

 

 

 

11,307

 

Other

 

 

 

26,030

 

 

 

 

26,921

 

 

 

 

15,325

 

Marketing and promotions

 

 

 

82,525

 

 

 

 

40,600

 

 

 

 

31,227

 

General and administrative

 

 

 

241,095

 

 

 

 

130,172

 

 

 

 

96,870

 

Corporate

 

 

 

30,739

 

 

 

 

19,880

 

 

 

 

16,469

 

Impairment charges

 

 

 

38,016

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

105,891

 

 

 

 

63,449

 

 

 

 

56,921

 

Total operating expenses

 

 

 

1,305,172

 

 

 

 

793,758

 

 

 

 

648,270

 

LOSS ON SALE OR DISPOSAL OF PROPERTY AND

   EQUIPMENT

 

 

 

(319

)

 

 

 

(836

)

 

 

 

(6

)

PROCEEDS FROM TERMINATED SALE

 

 

 

20,000

 

 

 

 

 

 

 

 

 

TRANSACTION EXPENSES

 

 

 

(92,777

)

 

 

 

(9,184

)

 

 

 

(2,452

)

EQUITY IN (LOSS) INCOME OF UNCONSOLIDATED

  AFFILIATES

 

 

 

(367

)

 

 

 

 

 

 

 

3,460

 

OPERATING INCOME

 

 

 

94,869

 

 

 

 

89,118

 

 

 

 

72,516

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

(99,769

)

 

 

 

(50,917

)

 

 

 

(61,558

)

Gain on valuation of unconsolidated affiliate

 

 

 

 

 

 

 

 

 

 

 

35,582

 

Loss on early retirement of debt, net

 

 

 

(38,430

)

 

 

 

(155

)

 

 

 

(1,937

)

Total other expense

 

 

 

(138,199

)

 

 

 

(51,072

)

 

 

 

(27,913

)

NET (LOSS) INCOME BEFORE INCOME TAXES

 

 

 

(43,330

)

 

 

 

38,046

 

 

 

 

44,603

 

BENEFIT (PROVISION) FOR INCOME TAXES

 

 

 

117,270

 

 

 

 

(13,244

)

 

 

 

69,580

 

NET INCOME

 

$

 

73,940

 

 

$

 

24,802

 

 

$

 

114,183

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income per share of Common Stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 

1.10

 

 

$

 

0.53

 

 

$

 

2.45

 

Diluted

 

$

 

1.09

 

 

$

 

0.52

 

 

$

 

2.43

 

Weighted Average Basic Shares Outstanding

 

 

 

67,133,531

 

 

 

 

47,033,311

 

 

 

 

46,550,042

 

Weighted Average Diluted Shares Outstanding

 

 

 

68,102,814

 

 

 

 

47,701,562

 

 

 

 

47,008,980

 

 

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

67


 

ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in thousands)

 

 

 

For the Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

NET INCOME

 

$

 

73,940

 

 

$

 

24,802

 

 

$

 

114,183

 

Other Comprehensive Income (Loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan—amortization of net income (loss),

   net of tax of $36 and $2 for 2017 and 2015, respectively

 

 

 

67

 

 

 

 

 

 

 

 

(75

)

Comprehensive Income, net of tax

 

$

 

74,007

 

 

$

 

24,802

 

 

$

 

114,108

 

 

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

 

 

 

68


 

ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in thousands)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Paid-in

Capital

 

 

Retained

Earnings

 

 

Non-

controlling

Interest

 

 

Accumulated

Other

Comprehensive

Income

 

 

Total

 

Balance, December 31, 2014

 

 

46,426,714

 

 

$

 

 

 

$

 

165,857

 

 

$

 

(14,425

)

 

$

 

103

 

 

$

 

87

 

 

$

 

151,622

 

Issuance of restricted stock units

 

 

17,980

 

 

 

 

 

 

 

 

1,488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,488

 

Acquisition of non-controlling interest

 

 

373,135

 

 

 

 

 

 

 

 

3,552

 

 

 

 

 

 

 

 

(103

)

 

 

 

 

 

 

 

3,449

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

114,183

 

 

 

 

 

 

 

 

 

 

 

 

114,183

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(75

)

 

 

 

(75

)

Balance, December 31, 2015

 

 

46,817,829

 

 

 

 

 

 

 

 

170,897

 

 

 

 

99,758

 

 

 

 

 

 

 

 

12

 

 

 

 

270,667

 

Issuance of restricted stock units

 

 

217,997

 

 

 

 

 

 

 

 

3,341

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,341

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,802

 

 

 

 

 

 

 

 

 

 

 

 

24,802

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

132,900

 

 

 

 

 

 

 

 

385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

385

 

Shares withheld related to net share settlement of stock awards

 

 

(62,982

)

 

 

 

 

 

 

 

(744

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(744

)

Balance, December 31, 2016

 

 

47,105,744

 

 

 

 

 

 

 

 

173,879

 

 

 

 

124,560

 

 

 

 

 

 

 

 

12

 

 

 

 

298,451

 

Isle common stock exchanged at merger

 

 

28,468,182

 

 

 

 

 

 

 

 

574,811

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

574,811

 

Issuance of restricted stock units

 

 

1,070,552

 

 

 

 

 

 

 

 

6,322

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,322

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

73,940

 

 

 

 

 

 

 

 

 

 

 

 

73,940

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

67

 

 

 

 

67

 

Exercise of stock options

 

 

1,185,745

 

 

 

 

 

 

 

 

2,900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,900

 

Shares withheld related to net share settlement of stock awards

 

 

(1,004,257

)

 

 

 

 

 

 

 

(11,365

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,365

)

Balance, December 31, 2017

 

 

76,825,966

 

 

$

 

 

 

$

 

746,547

 

 

$

 

198,500

 

 

$

 

 

 

$

 

79

 

 

$

 

945,126

 

 

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

 

 

69


 

ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

 

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

 

73,940

 

 

$

 

24,802

 

 

$

 

114,183

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

105,891

 

 

 

 

63,449

 

 

 

 

56,921

 

Amortization of deferred financing costs, discount and debt premium

 

 

 

6,289

 

 

 

 

3,520

 

 

 

 

(4,372

)

Equity in loss (income) of unconsolidated affiliates

 

 

 

367

 

 

 

 

 

 

 

 

(3,460

)

Loss on early retirement of debt

 

 

 

38,430

 

 

 

 

155

 

 

 

 

1,937

 

Gain on valuation of unconsolidated affiliate

 

 

 

 

 

 

 

 

 

 

 

(35,582

)

Change in fair value of acquisition related contingencies

 

 

 

37

 

 

 

 

57

 

 

 

 

90

 

Stock compensation expense

 

 

 

6,322

 

 

 

 

3,341

 

 

 

 

1,488

 

Loss on sale or disposal of property and equipment

 

 

 

319

 

 

 

 

836

 

 

 

 

6

 

Provision (benefit) for bad debt

 

 

 

531

 

 

 

 

161

 

 

 

 

(18

)

Impairment charges

 

 

 

38,016

 

 

 

 

 

 

 

 

 

(Benefit) provision for deferred income taxes

 

 

 

(113,062

)

 

 

 

11,344

 

 

 

 

(70,773

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted cash

 

 

 

355

 

 

 

 

2,857

 

 

 

 

711

 

Sale of trading securities

 

 

 

101

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

(19,110

)

 

 

 

(4,874

)

 

 

 

2,955

 

Inventory

 

 

 

105

 

 

 

 

687

 

 

 

 

(71

)

Prepaid expenses and other assets

 

 

 

(629

)

 

 

 

(1,654

)

 

 

 

2,094

 

Interest payable

 

 

 

10,974

 

 

 

 

(344

)

 

 

 

(14,112

)

Income taxes payable

 

 

 

(470

)

 

 

 

 

 

 

 

(137

)

Accounts payable and accrued liabilities

 

 

 

(18,165

)

 

 

 

(6,767

)

 

 

 

4,855

 

Net cash provided by operating activities

 

 

 

130,241

 

 

 

 

97,570

 

 

 

 

56,715

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment, net

 

 

 

(83,522

)

 

 

 

(47,380

)

 

 

 

(36,762

)

Reimbursement of capital expenditures from West Virginia regulatory authorities

 

 

 

361

 

 

 

 

4,207

 

 

 

 

1,266

 

Restricted cash

 

 

 

19,514

 

 

 

 

 

 

 

 

 

Proceeds from sale of property and equipment

 

 

 

135

 

 

 

 

1,560

 

 

 

 

153

 

Net cash used in business combinations

 

 

 

(1,343,659

)

 

 

 

(194

)

 

 

 

(125,016

)

Investment in and loans to unconsolidated affiliate

 

 

 

(604

)

 

 

 

 

 

 

 

(1,010

)

Decrease in restricted cash due to credit support deposit

 

 

 

 

 

 

 

 

 

 

 

2,500

 

Decrease in other assets, net

 

 

 

 

 

 

 

659

 

 

 

 

115

 

Net cash used in investing activities

 

 

 

(1,407,775

)

 

 

 

(41,148

)

 

 

 

(158,754

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of New Term Loan

 

 

 

1,450,000

 

 

 

 

 

 

 

 

 

Proceeds from issuance of 6% Senior Notes

 

 

 

875,000

 

 

 

 

 

 

 

 

 

Proceeds from issuance of 7% Senior Notes

 

 

 

 

 

 

 

 

 

 

 

375,000

 

Borrowings under New Revolving Credit Facility

 

 

 

166,953

 

 

 

 

 

 

 

 

 

Payments under Term Loan

 

 

 

(1,062

)

 

 

 

(4,250

)

 

 

 

425,000

 

Payments under New Term Loan

 

 

 

(493,250

)

 

 

 

 

 

 

 

 

Payments under New Revolving Credit Facility

 

 

 

(166,953

)

 

 

 

 

 

 

 

 

Borrowings under Prior Revolving Credit Facility

 

 

 

41,000

 

 

 

 

73,000

 

 

 

 

131,000

 

Payments under Prior Revolving Credit Facility

 

 

 

(29,000

)

 

 

 

(137,500

)

 

 

 

(37,500

)

Retirement of Term Loan

 

 

 

(417,563

)

 

 

 

 

 

 

 

 

Retirement of Prior Revolving Credit Facility

 

 

 

(41,000

)

 

 

 

 

 

 

 

 

Debt premium proceeds

 

 

 

27,500

 

 

 

 

 

 

 

 

 

Payment of other long-term obligation

 

 

 

(43

)

 

 

 

 

 

 

 

 

Principal payments under 7% Senior Notes

 

 

 

 

 

 

 

 

 

 

 

(2,125

)

Retirement of long-term debt

 

 

 

 

 

 

 

 

 

 

 

(728,664

)

Payments on capital leases

 

 

 

(490

)

 

 

 

(274

)

 

 

 

(88

)

Debt issuance costs

 

 

 

(51,526

)

 

 

 

(4,288

)

 

 

 

(25,820

)

Call premium on early retirement of debt

 

 

 

 

 

 

 

 

 

 

 

(44,090

)

Taxes paid related to net share settlement of equity awards

 

 

 

(11,365

)

 

 

 

(744

)

 

 

 

 

Proceeds from exercise of stock options

 

 

 

2,900

 

 

 

 

385

 

 

 

 

Net cash provided by (used in) financing activities

 

 

 

1,351,101

 

 

 

 

(73,671

)

 

 

 

92,713

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

 

73,567

 

 

 

 

(17,249

)

 

 

 

(9,326

)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

 

 

 

61,029

 

 

 

 

78,278

 

 

 

 

87,604

 

CASH AND CASH EQUIVALENTS, END OF YEAR

 

$

 

134,596

 

 

$

 

61,029

 

 

$

 

78,278

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid

 

$

 

84,604

 

 

$

 

47,696

 

 

$

 

78,378

 

Local income taxes paid

 

 

 

246

 

 

 

 

1,662

 

 

 

 

1,198

 

NON-CASH FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in payables for capital expenditures