Docoh
Loading...

CZR Caesars Entertainment

Filed: 6 Nov 19, 9:57pm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2019

OR

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

For the transition period                 to                 

 

Commission File No. 

001-36629

ELDORADO RESORTS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

46-3657681

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

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

(Address and zip code of principal executive offices)

(775) 328‑0100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.00001 par value

ERI

NASDAQ Stock Market

 

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes      No  

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

 

Large accelerated filer

 

Accelerated filer

Non‑accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

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

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

The number of shares of the Registrant’s Common Stock, $0.00001 par value per share, outstanding as of November 4, 2019 was 77,769,501.

 

 

 

 


 

ELDORADO RESORTS, INC.

QUARTERLY REPORT FOR THE THREE MONTHS ENDED

SEPTEMBER 30, 2019

TABLE OF CONTENTS

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

2

Item 1.

FINANCIAL STATEMENTS

 

2

 

Consolidated Balance Sheets at September 30, 2019 (unaudited) and December 31, 2018

 

2

 

Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)

 

3

 

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)

 

4

 

Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2019 and 2018 (unaudited)

 

5

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 (unaudited)

 

6

 

Condensed Notes to Consolidated Financial Statements (unaudited)

 

7

Item 2.

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

 

44

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

67

Item 4.

CONTROLS AND PROCEDURES

 

68

PART II. OTHER INFORMATION

 

69

Item 1.

LEGAL PROCEEDINGS

 

69

Item 1A.

RISK FACTORS

 

69

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

78

Item 3.

DEFAULTS UPON SENIOR SECURITIES

 

78

Item 4.

MINE SAFETY DISCLOSURES

 

78

Item 5.

OTHER INFORMATION

 

78

Item 6.

EXHIBITS

 

79

SIGNATURES

 

80

 

1


 

PART I-FINANCIAL INFORMATION

Item 1.  Financial Statements.

ELDORADO RESORTS, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

 

(unaudited)

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

208,831

 

 

$

 

230,752

 

Restricted cash and investments

 

 

 

22,242

 

 

 

 

24,892

 

Marketable securities

 

 

 

20,433

 

 

 

 

16,957

 

Accounts receivable, net

 

 

 

48,150

 

 

 

 

60,169

 

Due from affiliates

 

 

 

2,823

 

 

 

 

327

 

Inventories

 

 

 

17,684

 

 

 

 

20,595

 

Income taxes receivable

 

 

 

 

 

 

 

15,731

 

Prepaid expenses

 

 

 

37,429

 

 

 

 

48,002

 

Assets held for sale

 

 

 

605,947

 

 

 

 

155,771

 

Total current assets

 

 

 

963,539

 

 

 

 

573,196

 

Investment in and advances to unconsolidated affiliates

 

 

 

129,796

 

 

 

 

1,892

 

Property and equipment, net

 

 

 

2,635,111

 

 

 

 

2,882,606

 

Gaming licenses and other intangibles, net

 

 

 

1,118,855

 

 

 

 

1,362,006

 

Goodwill

 

 

 

909,717

 

 

 

 

1,008,316

 

Right-of-use assets

 

 

 

245,344

 

 

 

 

 

Other assets, net

 

 

 

78,879

 

 

 

 

83,446

 

Total assets

 

$

 

6,081,241

 

 

$

 

5,911,462

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

 

238

 

 

$

 

462

 

Accounts payable

 

 

 

50,024

 

 

 

 

58,524

 

Accrued property, gaming and other taxes

 

 

 

54,628

 

 

 

 

51,931

 

Accrued payroll and related

 

 

 

72,999

 

 

 

 

87,332

 

Accrued interest

 

 

 

34,637

 

 

 

 

42,780

 

Income taxes payable

 

 

 

15,425

 

 

 

 

47,475

 

Short-term lease obligation

 

 

 

21,963

 

 

 

 

 

Accrued other liabilities

 

 

 

108,999

 

 

 

 

102,982

 

Liabilities related to assets held for sale

 

 

 

56,058

 

 

 

 

10,691

 

Total current liabilities

 

 

 

414,971

 

 

 

 

402,177

 

Long-term financing obligation to GLPI

 

 

 

967,982

 

 

 

 

959,835

 

Long-term debt, less current portion

 

 

 

2,950,955

 

 

 

 

3,261,273

 

Deferred income taxes

 

 

 

224,877

 

 

 

 

200,010

 

Long-term lease obligation

 

 

 

229,297

 

 

 

 

 

Other long-term liabilities

 

 

 

166,381

 

 

 

 

59,014

 

Total liabilities

 

 

 

4,954,463

 

 

 

 

4,882,309

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

 

 

 

Common stock, 200,000,000 shares authorized, 77,545,678

   and 77,215,066 issued and outstanding, net of treasury shares, par value

   $0.00001 as of September 30, 2019 and December 31, 2018, respectively

 

 

 

1

 

 

 

 

1

 

Paid-in capital

 

 

 

756,225

 

 

 

 

748,076

 

Retained earnings

 

 

 

379,682

 

 

 

 

290,206

 

Treasury stock at cost, 223,823 shares held at September 30, 2019 and

   December 31, 2018

 

 

 

(9,131

)

 

 

 

(9,131

)

Accumulated other comprehensive income

 

 

 

1

 

 

 

 

1

 

Total stockholders’ equity

 

 

 

1,126,778

 

 

 

 

1,029,153

 

Total liabilities and stockholders’ equity

 

$

 

6,081,241

 

 

$

 

5,911,462

 

 

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

2


 

ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino and pari-mutuel commissions

 

$

 

458,000

 

 

$

 

368,169

 

 

$

 

1,385,848

 

 

$

 

1,060,417

 

Food and beverage

 

 

 

78,435

 

 

 

 

58,153

 

 

 

 

229,072

 

 

 

 

164,644

 

Hotel

 

 

 

94,318

 

 

 

 

44,780

 

 

 

 

237,493

 

 

 

 

114,447

 

Other

 

 

 

32,428

 

 

 

 

16,151

 

 

 

 

83,712

 

 

 

 

44,739

 

Net revenues

 

 

 

663,181

 

 

 

 

487,253

 

 

 

 

1,936,125

 

 

 

 

1,384,247

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino and pari-mutuel commissions

 

 

 

202,555

 

 

 

 

180,062

 

 

 

 

616,101

 

 

 

 

519,558

 

Food and beverage

 

 

 

60,406

 

 

 

 

45,381

 

 

 

 

180,288

 

 

 

 

134,927

 

Hotel

 

 

 

27,315

 

 

 

 

13,977

 

 

 

 

76,101

 

 

 

 

40,178

 

Other

 

 

 

12,092

 

 

 

 

9,315

 

 

 

 

34,064

 

 

 

 

25,030

 

Marketing and promotions

 

 

 

33,292

 

 

 

 

23,122

 

 

 

 

97,673

 

 

 

 

66,255

 

General and administrative

 

 

 

122,767

 

 

 

 

75,599

 

 

 

 

360,086

 

 

 

 

223,546

 

Corporate

 

 

 

13,014

 

 

 

 

9,217

 

 

 

 

50,819

 

 

 

 

33,018

 

Impairment charges

 

 

 

 

 

 

 

3,787

 

 

 

 

958

 

 

 

 

13,602

 

Depreciation and amortization

 

 

 

52,592

 

 

 

 

35,760

 

 

 

 

166,882

 

 

 

 

99,204

 

Total operating expenses

 

 

 

524,033

 

 

 

 

396,220

 

 

 

 

1,582,972

 

 

 

 

1,155,318

 

(Loss) gain on sale or disposal of property and equipment

 

 

 

(284

)

 

 

 

(110

)

 

 

 

21,668

 

 

 

 

(393

)

Proceeds from terminated sales

 

 

 

 

 

 

 

5,000

 

 

 

 

 

 

 

 

5,000

 

Transaction expenses

 

 

 

(12,442

)

 

 

 

(4,091

)

 

 

 

(21,628

)

 

 

 

(10,043

)

Loss from unconsolidated affiliates

 

 

 

(1,515

)

 

 

 

(63

)

 

 

 

(2,132

)

 

 

 

(116

)

Operating income

 

 

 

124,907

 

 

 

 

91,769

 

 

 

 

351,061

 

 

 

 

223,377

 

OTHER EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

(71,897

)

 

 

 

(34,085

)

 

 

 

(217,205

)

 

 

 

(96,579

)

Loss on early retirement of debt, net

 

 

 

(1,204

)

 

 

 

 

 

 

 

(1,204

)

 

 

 

(162

)

Unrealized gain on restricted investments

 

 

 

3,318

 

 

 

 

 

 

 

 

460

 

 

 

 

 

Total other expense

 

 

 

(69,783

)

 

 

 

(34,085

)

 

 

 

(217,949

)

 

 

 

(96,741

)

Income before income taxes

 

 

 

55,124

 

 

 

 

57,684

 

 

 

 

133,112

 

 

 

 

126,636

 

Provision for income taxes

 

 

 

(18,069

)

 

 

 

(19,980

)

 

 

 

(38,892

)

 

 

 

(31,281

)

Net income

 

$

 

37,055

 

 

$

 

37,704

 

 

$

 

94,220

 

 

$

 

95,355

 

Net income per share of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 

0.48

 

 

$

 

0.49

 

 

$

 

1.21

 

 

$

 

1.23

 

Diluted

 

$

 

0.47

 

 

$

 

0.48

 

 

$

 

1.20

 

 

$

 

1.22

 

Weighted average basic shares outstanding

 

 

 

77,721,353

 

 

 

 

77,522,664

 

 

 

 

77,657,553

 

 

 

 

77,445,611

 

Weighted average diluted shares outstanding

 

 

 

78,449,747

 

 

 

 

78,283,588

 

 

 

 

78,588,517

 

 

 

 

78,208,040

 

 

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

 

 

3


 

ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

 

37,055

 

 

$

 

37,704

 

 

$

 

94,220

 

 

$

 

95,355

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income, net of tax

 

$

 

37,055

 

 

$

 

37,704

 

 

$

 

94,220

 

 

$

 

95,355

 

 

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

 

 

4


 

ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in thousands)

(unaudited)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Paid-in

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income

 

 

Shares

 

 

Amount

 

 

Total

 

Balance, December 31, 2018

 

 

77,438,889

 

 

$

 

1

 

 

$

 

748,076

 

 

$

 

290,206

 

 

$

 

1

 

 

 

 

223,823

 

 

$

 

(9,131

)

 

$

 

1,029,153

 

Cumulative change in accounting principle, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,744

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,744

)

Issuance of restricted stock units

 

 

330,641

 

 

 

 

 

 

 

 

4,948

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,948

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,229

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,229

 

Shares withheld related to net share settlement

   of stock awards

 

 

(106,542

)

 

 

 

 

 

 

 

(4,322

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,322

)

Balance, March 31, 2019

 

 

77,662,988

 

 

$

 

1

 

 

$

 

748,702

 

 

$

 

323,691

 

 

$

 

1

 

 

 

 

223,823

 

 

$

 

(9,131

)

 

$

 

1,063,264

 

Issuance of restricted stock units

 

 

169,248

 

 

 

 

 

 

 

 

6,509

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,509

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,936

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,936

 

Shares withheld related to net share settlement

   of stock awards

 

 

(65,312

)

 

 

 

 

 

 

 

(3,190

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,190

)

Balance, June 30, 2019

 

 

77,766,924

 

 

$

 

1

 

 

$

 

752,021

 

 

$

 

342,627

 

 

$

 

1

 

 

 

 

223,823

 

 

$

 

(9,131

)

 

$

 

1,085,519

 

Issuance of restricted stock units

 

 

3,377

 

 

 

 

 

 

 

 

4,266

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,266

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37,055

 

Shares withheld related to net share settlement

   of stock awards

 

 

(800

)

 

 

 

 

 

 

 

(62

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(62

)

Balance, September 30, 2019

 

 

77,769,501

 

 

$

 

1

 

 

$

 

756,225

 

 

$

 

379,682

 

 

$

 

1

 

 

 

 

223,823

 

 

$

 

(9,131

)

 

$

 

1,126,778

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017

 

 

76,825,966

 

 

$

 

 

 

$

 

746,547

 

 

$

 

194,971

 

 

$

 

79

 

 

 

 

 

 

$

 

 

 

$

 

941,597

 

Issuance of restricted stock units

 

 

645,047

 

 

 

 

 

 

 

 

3,679

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,679

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,855

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,855

 

Shares withheld related to net share settlement

   of stock awards

 

 

(229,898

)

 

 

 

 

 

 

 

(7,502

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,502

)

Balance, March 31, 2018

 

 

77,241,115

 

 

$

 

 

 

$

 

742,724

 

 

$

 

215,826

 

 

$

 

79

 

 

 

 

 

 

$

 

 

 

$

 

958,629

 

Issuance of restricted stock units

 

 

64,833

 

 

 

 

1

 

 

 

 

3,471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,472

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36,796

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36,796

 

Exercise of stock options

 

 

50,336

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares withheld related to net share settlement

   of stock awards

 

 

(19,674

)

 

 

 

 

 

 

 

(2,175

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,175

)

Balance, June 30, 2018

 

 

77,336,610

 

 

$

 

1

 

 

$

 

744,020

 

 

$

 

252,622

 

 

$

 

79

 

 

 

 

 

 

$

 

 

 

$

 

996,722

 

Issuance of restricted stock units

 

 

61,535

 

 

 

 

 

 

 

 

2,495

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,495

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37,704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37,704

 

Exercise of stock options

 

 

17,000

 

 

 

 

 

 

 

 

154

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

154

 

Shares withheld related to net share settlement

   of stock awards

 

 

(23,901

)

 

 

 

 

 

 

 

(924

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(924

)

Balance, September 30, 2018

 

 

77,391,244

 

 

$

 

1

 

 

$

 

745,745

 

 

$

 

290,326

 

 

$

 

79

 

 

 

 

 

 

$

 

 

 

$

 

1,036,151

 

 

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

 

 

5


 

ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Net income

 

$

 

94,220

 

 

$

 

95,355

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

166,882

 

 

 

 

99,204

 

Amortization of deferred financing costs, discount and debt premium

 

 

 

13,861

 

 

 

 

3,753

 

Deferred revenue

 

 

 

(4,966

)

 

 

 

 

Unrealized gain on restricted investment

 

 

 

(460

)

 

 

 

 

Loss on early retirement of debt

 

 

 

1,204

 

 

 

 

162

 

Lease amortization

 

 

 

2,367

 

 

 

 

1,285

 

Stock compensation expense

 

 

 

15,723

 

 

 

 

9,645

 

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

 

 

 

(21,668

)

 

 

 

393

 

Impairment charges

 

 

 

958

 

 

 

 

13,602

 

Provision for deferred income taxes

 

 

 

26,080

 

 

 

 

28,345

 

Loss from unconsolidated affiliates

 

 

 

2,132

 

 

 

 

116

 

Other

 

 

 

1,204

 

 

 

 

1,119

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

10,147

 

 

 

 

(441

)

Prepaid expenses and other assets

 

 

 

5,489

 

 

 

 

1,602

 

Income taxes payable

 

 

 

(30,318

)

 

 

 

4,398

 

Accounts payable and accrued other liabilities

 

 

 

(22,772

)

 

 

 

4,910

 

Net cash provided by operating activities

 

 

 

260,083

 

 

 

 

263,448

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment, net

 

 

 

(135,016

)

 

 

 

(89,082

)

Sale of restricted investments

 

 

 

4,962

 

 

 

 

 

Proceeds from sale of businesses, property and equipment, net of cash sold

 

 

 

169,361

 

 

 

 

920

 

Net cash used in business combinations

 

 

 

 

 

 

 

(306,274

)

Investment in and loans to unconsolidated affiliates

 

 

 

(815

)

 

 

 

(698

)

Net cash provided by (used in) investing activities

 

 

 

38,492

 

 

 

 

(395,134

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of 6% Senior Notes due 2026

 

 

 

 

 

 

 

600,000

 

Payments on Term Loan

 

 

 

(70,000

)

 

 

 

 

Net (payments) borrowings under Revolving Credit Facility

 

 

 

(245,000

)

 

 

 

180,000

 

Debt issuance costs

 

 

 

(458

)

 

 

 

(5,401

)

Taxes paid related to net share settlement of equity awards

 

 

 

(7,574

)

 

 

 

(10,601

)

Proceeds from exercise of stock options

 

 

 

 

 

 

 

154

 

Payments on other long-term payables

 

 

 

(372

)

 

 

 

(501

)

Net cash (used in) provided by financing activities

 

 

 

(323,404

)

 

 

 

763,651

 

 

 

 

 

 

 

 

 

 

 

 

(Decrease) Increase in cash, cash equivalents and restricted cash

 

 

 

(24,829

)

 

 

 

631,965

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

 

246,691

 

 

 

 

147,749

 

Cash, cash equivalents and restricted cash, end of period

 

$

 

221,862

 

 

$

 

779,714

 

 

 

 

 

 

 

 

 

 

 

 

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO

   AMOUNTS REPORTED WITHIN THE CONDENSED CONSOLIDATED BALANCE SHEETS:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

208,831

 

 

$

 

164,086

 

Restricted cash

 

 

 

6,437

 

 

 

 

1,622

 

Restricted and escrow cash included in other noncurrent assets

 

 

 

6,594

 

 

 

 

614,006

 

Total cash, cash equivalents and restricted cash

 

$

 

221,862

 

 

$

 

779,714

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

 

Interest paid

 

$

 

213,719

 

 

$

 

86,964

 

Income taxes paid, net

 

 

 

43,053

 

 

 

 

3,953

 

NON-CASH FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Payables for capital expenditures

 

 

 

11,292

 

 

 

 

11,190

 

 

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

6


 

ELDORADO RESORTS, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1. Organization and Basis of Presentation

Organization

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

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

On August 7, 2018, the Company completed its acquisition of the outstanding partnership interests of Elgin Riverboat Resort – Riverboat Casino d/b/a Grand Victoria Casino, an Illinois partnership (“Elgin”), the owner of Grand Victoria Casino, located in Elgin, Illinois (the “Elgin Acquisition”). On October 1, 2018, the Company completed its acquisition of Tropicana Entertainment, Inc. (“Tropicana”), and added 7 properties to its portfolio (the “Tropicana Acquisition”).

On January 11, 2019 and March 8, 2019, respectively, the Company closed on its sales of Presque Isle Downs & Casino (“Presque Isle Downs”) and Lady Luck Casino Nemacolin (“Nemacolin”), which are both located in Pennsylvania.

7


 

The following table sets forth certain information regarding our properties (listed by segment in which each property is reported) as of September 30, 2019:

 

 

 

 

 

 

 

 

Segment

 

Property

 

Date Acquired

 

State

West

 

Eldorado Resort Casino Reno ("Eldorado Reno")

 

(a)

 

Nevada

 

 

Silver Legacy Resort Casino ("Silver Legacy")

 

(a)

 

Nevada

 

 

Circus Circus Reno ("Circus Reno")

 

(a)

 

Nevada

 

 

MontBleu Casino Resort & Spa ("MontBleu")

 

October 1, 2018

 

Nevada

 

 

Tropicana Laughlin Hotel & Casino ("Laughlin")

 

October 1, 2018

 

Nevada

 

 

Isle Casino Hotel - Blackhawk ("Isle Black Hawk")

 

May 1, 2017

 

Colorado

 

 

Lady Luck Casino - Black Hawk ("Lady Luck Black Hawk")

 

May 1, 2017

 

Colorado

 

 

 

 

 

 

 

Midwest

 

Isle Casino Waterloo ("Waterloo")

 

May 1, 2017

 

Iowa

 

 

Isle Casino Bettendorf ("Bettendorf")

 

May 1, 2017

 

Iowa

 

 

Isle of Capri Casino Boonville ("Boonville")

 

May 1, 2017

 

Missouri

 

 

Isle Casino Cape Girardeau ("Cape Girardeau")

 

May 1, 2017 (c)

 

Missouri

 

 

Lady Luck Casino Caruthersville ("Caruthersville")

 

May 1, 2017 (c)

 

Missouri

 

 

Isle of Capri Casino Kansas City ("Kansas City")

 

May 1, 2017 (c)

 

Missouri

 

 

 

 

 

 

 

South

 

Isle Casino Racing Pompano Park ("Pompano")

 

May 1, 2017

 

Florida

 

 

Eldorado Resort Casino Shreveport ("Eldorado Shreveport")

 

(a)

 

Louisiana

 

 

Isle of Capri Casino Hotel Lake Charles ("Lake Charles")

 

May 1, 2017

 

Louisiana

 

 

Belle of Baton Rouge Casino & Hotel ("Baton Rouge")

 

October 1, 2018

 

Louisiana

 

 

Isle of Capri Casino Lula ("Lula")

 

May 1, 2017

 

Mississippi

 

 

Lady Luck Casino Vicksburg ("Vicksburg")

 

May 1, 2017 (c)

 

Mississippi

 

 

Trop Casino Greenville ("Greenville")

 

October 1, 2018

 

Mississippi

 

 

 

 

 

 

 

East (b)

 

Eldorado Gaming Scioto Downs ("Scioto Downs")

 

(a)

 

Ohio

 

 

Mountaineer Casino, Racetrack & Resort ("Mountaineer")

 

(a) (c)

 

West Virginia

 

 

Tropicana Casino and Resort, Atlantic City ("Trop AC")

 

October 1, 2018

 

New Jersey

 

 

 

 

 

 

 

Central

 

Grand Victoria Casino ("Elgin")

 

August 7, 2018

 

Illinois

 

 

Lumière Place Casino ("Lumière")

 

October 1, 2018

 

Missouri

 

 

Tropicana Evansville ("Evansville")

 

October 1, 2018

 

Indiana

 

(a)

Property was aggregated into segment prior to January 1, 2016.

(b)

Presque Isle Downs was sold on January 11, 2019 and Nemacolin was sold on March 8, 2019. Both properties were previously reported in the East segment.

(c)

Property currently pending sale (see Note 5).

8


 

Reclassifications

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

Basis of Presentation

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

The executive decision maker of our Company reviews operating results, assesses performance and makes decisions on a “significant market” basis. Management views each of our casinos as an operating segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, and their management and reporting structure. Prior to the Elgin and Tropicana acquisitions, the Company’s principal operating activities occurred in 4 geographic regions and reportable segments. Following the Elgin and Tropicana acquisitions, a fifth segment, Central, was added. The reportable segments are based on the similar characteristics of the operating segments within the regions in which they operate: West, Midwest, South, East, and Central. (See the table above for a listing of properties included in each segment).

The presentation of information herein for periods prior to our acquisitions of Elgin and Tropicana and after our dispositions of Presque Isle Downs and Nemacolin are not fully comparable because the results of operations for Elgin and Tropicana are not included for periods prior to August 7, 2018 and October 1, 2018, respectively. Additionally, the results of operations for Presque Isle Downs and Nemacolin are not included for periods after the sales date. The Company closed on its sales of Presque Isle Downs and Nemacolin in January 2019 and March 2019, respectively. (See Note 5).

These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Recently Issued Accounting Pronouncements

Pronouncements Implemented in 2019

 

In February 2016 (as amended through December 2018), the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02 codified as Accounting Standards Codification (“ASC”) 842, Leases, (“ASC 842”) which addresses the recognition and measurement of leases. Under the new guidance, for all leases, at the commencement date, lessees were required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease. The liability is measured on a discounted basis.  Lessees also recognized a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to control the use of a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. The effective date was for annual and interim periods beginning after December 15, 2018. ASC 842 required a transition adoption election using either 1) a modified retrospective approach with periods prior to the adoption date being recast or 2) a prospective approach with a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption date with prior periods continuing to be reported under prior lease accounting guidance. 

 

The Company adopted ASC 842 on January 1, 2019 using the prospective approach, and therefore, comparative periods will continue to be reported under prior lease accounting guidance consistent with previously issued financial statements. The Company elected the package of practical expedients permitted under the transition guidance within ASC 842, which among other things, allowed us to carry forward the historical lease identification, lease classification and treatment of initial direct costs for leases entered into prior to January 1, 2019. The Company also made an accounting policy election to not record short-term leases with an initial term of 12 months or less on the balance sheet for all classes of underlying assets. The Company has also elected to not adopt the hindsight practical expedient for determining lease terms.

 

The Company’s operating leases, in which the Company is the lessee, are recorded on the balance sheet as a ROU asset with a corresponding lease liability. The lease liability will be remeasured each reporting period with a corresponding change to the ROU asset.  The adoption of this guidance did not have an impact on net income; however, upon adoption the Company recorded a cumulative adjustment to our retained earnings of $4.7 million, net of tax, primarily related to the Company’s lease and management agreements at its Bettendorf location. (See Note 2).  Adoption of this guidance did not have a material impact on the Company’s other financing leases.

9


 

Pronouncements to Be Implemented in Future Periods

In June 2016 (modified in November 2018), the FASB issued ASU No 2016-13, Financial Instruments – Credit Losses related to timing of recognizing impairment losses on financial assets.  The new guidance lowers the threshold on when losses are incurred, from a determination that a loss is probable to a determination that a loss is expected.  The change in guidance will be applicable to our evaluation of the CRDA investments (see Note 8).  The guidance is effective for interim and annual periods beginning after December 15, 2019.  Adoption of the guidance requires a modified-retrospective approach and a cumulative adjustment to retained earnings to the first reporting period that the update is effective.  The Company will adopt the new guidance on January 1, 2020. The Company is evaluating the qualitative and quantitative effects of the new guidance and currently does not expect a cumulative effect on its Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). This generally means that an intangible asset is recognized for the software license and, to the extent that the payments attributable to the software license are made over time, a liability also is recognized. If a cloud computing arrangement does not include a software license, the entity should account for the arrangement as a service contract. This generally means that the fees associated with the hosting element (service) of the arrangement are expensed as incurred. The amendment is effective for annual and interim periods beginning after December 15, 2019, with early adoption allowed. The Company will adopt the new guidance on January 1, 2020. The Company is evaluating the qualitative and quantitative effects of the new guidance and currently does not believe it will have a significant impact on its Consolidated Financial Statements.

In August 2018, the FASB issued ASU No 2018-14, Compensation –Retirement Benefits – Defined Benefit Plans – General.  This amendment improves disclosures over defined benefit plans and is effective for interim and annual periods ending after December 15, 2020 with early adoption allowed.  The Company anticipates adopting this amendment during the first quarter of 2021, and currently does not expect it to have a significant impact on its Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This amendment modifies the disclosure requirements for fair value measurements and is effective for annual and interim periods beginning after December 15, 2019 with early adoption allowed. The Company will adopt the new guidance on January 1, 2020. The Company is evaluating the qualitative and quantitative effect the new guidance will have on its Consolidated Financial Statements.

 

Note 2. Leases

The Company’s management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset.

Finance and operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date. As the implicit rate is not determinable in most of the Company’s leases, management uses the Company’s incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expense for operating leases with minimum lease payments is recognized on a straight-line basis over the expected lease term.

The Company’s lease arrangements have lease and non-lease components. For leases in which the Company is the lessee, the Company accounts for the lease components and non-lease components as a single lease component for all classes of underlying assets. Leases, in which the Company is the lessor, are substantially all accounted for as operating leases and the lease components and non-lease components are accounted for separately, which is consistent with the Company’s historical accounting. Leases with an expected or initial term of 12 months or less are not accounted for on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.

10


 

The Company has operating and finance leases for various real estate and equipment. Certain of the Company’s lease agreements include rental payments based on a percentage of sales over specified contractual amounts, rental payments adjusted periodically for inflation and rental payments based on usage. The Company’s leases include options to extend the lease term one month to 60 years. Except for the GLPI Master Lease (see Note 10), the Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Leases recorded on the balance sheet consist of the following (in thousands):

 

Leases

 

Classification on the Balance Sheet

 

September 30, 2019

 

ASSETS

 

 

 

 

 

 

 

Operating lease ROU assets

 

 

 

$

 

245,344

 

Finance lease ROU assets

 

Property and equipment, net(1)

 

$

 

646,353

 

LIABILITIES

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

Operating

 

 

 

$

 

21,963

 

Finance

 

Current portion of long-term debt

 

$

 

133

 

Noncurrent:

 

 

 

 

 

 

 

Operating

 

 

 

$

 

229,297

 

Finance

 

Long-term financing obligation and debt

 

$

 

968,138

 

 

 

 

(1)

Finance lease ROU assets are recorded net of accumulated depreciation of $12.4 million as of September 30, 2019.

 

Other information related to lease terms and discount rates are as follows:

 

  

 

September 30, 2019

 

Weighted Average Remaining Lease Term

 

 

 

 

 

Operating leases

 

 

34.1 years

 

Finance leases

 

 

34.0 years

 

Weighted Average Discount Rate

 

 

 

 

 

Operating leases(1)

 

 

7.2%

 

Finance leases

 

 

10.2%

 

 

 

(1)

Upon adoption of the new lease standard, discount rates used for existing operating leases were established on January 1, 2019.

The components of lease expense are as follows (in thousands):

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 2019

 

September 30, 2019

 

Operating lease cost:

 

 

 

 

 

 

 

 

 

 

Operating lease cost

$

 

 

7,674

 

$

 

 

22,729

 

Short-term and variable lease cost

 

 

 

1,573

 

 

 

 

5,211

 

Finance lease cost:

 

 

 

 

 

 

 

 

 

 

Interest expense on lease liabilities

 

 

 

24,696

 

 

 

 

73,931

 

Amortization of ROU assets

 

 

 

2,628

 

 

 

 

7,766

 

Total lease cost

$

 

 

36,571

 

$

 

 

109,637

 

 

Supplemental cash flow information related to leases is as follows (in thousands):

 

Nine Months Ended

 

 

September 30, 2019

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

Operating cash flows for operating leases

$

 

 

19,382

 

Operating cash flows for finance leases

$

 

 

65,785

 

 

11


 

Maturities of lease liabilities are summarized as follows (in thousands):

 

 

Operating Leases

 

 

Finance Leases

 

Year ending December 31,

 

 

 

 

 

 

 

 

 

 

2019 (excluding the nine months ended September 30, 2019)

 

$

 

8,462

 

 

$

 

22,314

 

2020

 

 

 

19,666

 

 

 

 

89,246

 

2021

 

 

 

20,786

 

 

 

 

90,463

 

2022

 

 

 

19,784

 

 

 

 

91,756

 

2023

 

 

 

19,823

 

 

 

 

92,990

 

Thereafter

 

 

 

821,046

 

 

 

 

3,506,672

 

Total future minimum lease payments

 

 

 

909,567

 

 

 

 

3,893,441

 

Less: amount representing interest

 

 

 

(658,307

)

 

 

 

(3,345,270

)

Present value of future minimum lease payments

 

 

 

251,260

 

 

 

 

548,171

 

Less: current lease obligations

 

 

 

(21,963

)

 

 

 

(133

)

Plus: residual values - GLPI

 

 

 

 

 

 

 

420,100

 

Long-term lease obligations

 

$

 

229,297

 

 

$

 

968,138

 

 

Note 3. Revenue Recognition

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

 

Hotel, food and beverage services have been determined to be separate, stand-alone performance obligations and are recorded as revenue as the good or service is transferred to the customer over the customer’s stay at the hotel or when the delivery is made for the food and beverage. Advance deposits for future hotel occupancy, convention space or food and beverage services contracts are recorded as deferred income until the revenue recognition criteria has been met. The Company also provides goods and services that may include multiple performance obligations, such as for packages, for which revenues are allocated on a pro rata basis based on each service's stand-alone selling price.

 

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

The Company offers discretionary coupons and other discretionary complimentaries to customers outside of the player loyalty program. The retail value of complimentary food, beverage, hotel rooms and other services provided to customers is recognized as a reduction to the revenues for the department which issued the complimentary and a credit to the revenue for the department redeemed. Complimentaries provided by third parties at the discretion and under the control of the Company is recorded as an expense when incurred.

12


 

The Company’s consolidated statement of operations presents net revenue disaggregated by type or nature of the good or service (i.e., casino, pari-mutuel, food and beverage, hotel and other, including revenues associated with the Company’s interests in William Hill and The Stars Group Inc. (“TSG”)). A summary of net revenues disaggregated by type of revenue and reportable segment is presented below (amounts in thousands). Refer to Notes 1 and 16 for additional information on the Company’s reportable segments.

 

 

 

Three Months Ended September 30, 2019

 

 

 

West

 

 

Midwest

 

 

South

 

 

East

 

 

Central

 

 

Corporate

and Other

 

 

Total

 

Casino

 

$

 

62,081

 

 

$

 

84,249

 

 

$

 

87,331

 

 

$

 

129,244

 

 

$

 

95,095

 

 

$

 

 

 

$

 

458,000

 

Food and beverage

 

 

 

32,897

 

 

 

 

5,570

 

 

 

 

12,049

 

 

 

 

16,280

 

 

 

 

11,639

 

 

 

 

 

 

 

 

78,435

 

Hotel

 

 

 

41,352

 

 

 

 

4,240

 

 

 

 

6,647

 

 

 

 

33,039

 

 

 

 

9,040

 

 

 

 

 

 

 

 

94,318

 

Other

 

 

 

15,088

 

 

 

 

1,807

 

 

 

 

1,990

 

 

 

 

7,999

 

 

 

 

3,636

 

 

 

 

1,908

 

 

 

 

32,428

 

Net revenues

 

$

 

151,418

 

 

$

 

95,866

 

 

$

 

108,017

 

 

$

 

186,562

 

 

$

 

119,410

 

 

$

 

1,908

 

 

$

 

663,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

 

West

 

 

Midwest

 

 

South

 

 

East

 

 

Central

 

 

Corporate

and Other

 

 

Total

 

Casino

 

$

 

60,912

 

 

$

 

86,331

 

 

$

 

86,153

 

 

$

 

113,075

 

 

$

 

21,698

 

 

$

 

 

 

$

 

368,169

 

Food and beverage

 

 

 

27,502

 

 

 

 

6,867

 

 

 

 

12,492

 

 

 

 

9,359

 

 

 

 

1,933

 

 

 

 

 

 

 

 

58,153

 

Hotel

 

 

 

31,583

 

 

 

 

4,720

 

 

 

 

6,169

 

 

 

 

2,308

 

 

 

 

 

 

 

 

 

 

 

 

44,780

 

Other

 

 

 

9,095

 

 

 

 

1,916

 

 

 

 

1,755

 

 

 

 

2,980

 

 

 

 

266

 

 

 

 

139

 

 

 

 

16,151

 

Net revenues

 

$

 

129,092

 

 

$

 

99,834

 

 

$

 

106,569

 

 

$

 

127,722

 

 

$

 

23,897

 

 

$

 

139

 

 

$

 

487,253

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

West

 

 

Midwest

 

 

South

 

 

East

 

 

Central

 

 

Corporate

and Other

 

 

Total

 

Casino

 

$

 

170,980

 

 

$

 

254,641

 

 

$

 

291,552

 

 

$

 

378,246

 

 

$

 

290,429

 

 

$

 

 

 

$

 

1,385,848

 

Food and beverage

 

 

 

90,084

 

 

 

 

17,553

 

 

 

 

39,815

 

 

 

 

45,960

 

 

 

 

35,660

 

 

 

 

 

 

 

 

229,072

 

Hotel

 

 

 

102,804

 

 

 

 

11,962

 

 

 

 

19,822

 

 

 

 

77,372

 

 

 

 

25,533

 

 

 

 

 

 

 

 

237,493

 

Other

 

 

 

33,373

 

 

 

 

5,734

 

 

 

 

6,480

 

 

 

 

21,671

 

 

 

 

11,053

 

 

 

 

5,401

 

 

 

 

83,712

 

Net revenues

 

$

 

397,241

 

 

$

 

289,890

 

 

$

 

357,669

 

 

$

 

523,249

 

 

$

 

362,675

 

 

$

 

5,401

 

 

$

 

1,936,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

West

 

 

Midwest

 

 

South

 

 

East

 

 

Central

 

 

Corporate

and Other

 

 

Total

 

Casino

 

$

 

168,342

 

 

$

 

262,138

 

 

$

 

278,655

 

 

$

 

329,584

 

 

$

 

21,698

 

 

$

 

 

 

$

 

1,060,417

 

Food and beverage

 

 

 

76,524

 

 

 

 

20,527

 

 

 

 

38,936

 

 

 

 

26,724

 

 

 

 

1,933

 

 

 

 

 

 

 

 

164,644

 

Hotel

 

 

 

77,234

 

 

 

 

12,775

 

 

 

 

18,462

 

 

 

 

5,976

 

 

 

 

 

 

 

 

 

 

 

 

114,447

 

Other

 

 

 

24,450

 

 

 

 

5,795

 

 

 

 

5,559

 

 

 

 

8,292

 

 

 

 

266

 

 

 

 

377

 

 

 

 

44,739

 

Net revenues

 

$

 

346,550

 

 

$

 

301,235

 

 

$

 

341,612

 

 

$

 

370,576

 

 

$

 

23,897

 

 

$

 

377

 

 

$

 

1,384,247

 

 

Contract and Contract Related Liabilities

The Company records contract or contract-related liabilities related to differences between the timing of cash receipts from the customer and the recognition of revenue. The Company generally has three types of liabilities related to contracts with customers: (1) outstanding chip liability, which represents the amounts owed in exchange for gaming chips held by a customer, (2) player loyalty program obligations, which represents the deferred allocation of revenue relating to player loyalty program incentives earned, as discussed above, and (3) customer deposits and other deferred revenue, which is primarily funds deposited by customers related to gaming play, advance payments on goods and services yet to be provided (such as advance ticket sales and deposits on rooms and convention space or for unpaid wagers), and deferred revenues associated with the Company’s interests in William Hill and TSG (see Note 7 and Note 8). Except for deferred revenues related to William Hill and TSG, these liabilities are generally expected to be recognized as revenue within one year of being purchased, earned, or deposited and are recorded within “Accrued other liabilities” on the Company’s Consolidated Balance Sheets.

 

13


 

The following table summarizes the activity related to contract and contract-related liabilities (in thousands):

 

 

 

Outstanding Chip Liability

 

 

Player Loyalty Liability

 

 

Customer Deposits and Other

Deferred Revenue

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Balance at January 1

 

$

 

8,930

 

 

$

 

4,743

 

 

$

 

17,639

 

 

$

 

11,752

 

 

$

 

27,588

 

 

$

 

5,487

 

Balance at September 30

 

 

 

8,494

 

 

 

 

5,481

 

 

 

 

14,122

 

 

 

 

11,189

 

 

 

 

172,631

 

 

 

 

4,764

 

Increase / (decrease)

 

$

 

(436

)

 

$

 

738

 

 

$

 

(3,517

)

 

$

 

(563

)

 

$

 

145,043

 

 

$

 

(723

)

 

The September 30, 2019 balances exclude liabilities related to assets held for sale recorded in 2019 (see Note 5).  The change in customer deposits and other deferred revenue during the nine months ended September 30, 2019 is primarily attributed to the Company’s interests in William Hill, which is recorded in other long-term liabilities on the Consolidated Balance Sheets (see Note 7).

 

Note 4. Purchase Price Accounting and Pro Forma Information

Tropicana

Acquisition Summary

On April 15, 2018, the Company announced that it had entered into a definitive agreement to acquire Tropicana in a cash transaction valued at $1.9 billion. At the closing of the transaction on October 1, 2018, a subsidiary of the Company merged into Tropicana and Tropicana became a wholly-owned subsidiary of the Company. Immediately prior to the merger, Tropicana sold Tropicana Aruba Resort and Casino and Gaming and Leisure Properties, Inc. (“GLPI”) acquired substantially all of Tropicana’s real estate, other than the real estate underlying MontBleu and Lumière, for approximately $964 million. The Company acquired Tropicana’s operations and certain real estate for $927.3 million. Substantially concurrently with the acquisition of the real estate portfolio by GLPI, the Company also entered into a triple net master lease with GLPI (the “Master Lease”) (see Note 10). The Company funded the purchase of the real estate underlying Lumière with the proceeds of a $246 million loan (see Note 11) and funded the remaining consideration payable with cash on hand at the Company and Tropicana, borrowings under the Company’s revolving credit facility and proceeds from the Company’s offering of $600 million in aggregate principal amount of 6% senior notes due 2026.

Transaction expenses related to the Tropicana Acquisition totaled $0.8 million and $2.0 million for the three months ended September 30, 2019 and 2018, respectively, and $3.3 million and $5.5 million for the nine months ended September 30, 2019 and 2018, respectively.

 

Final Purchase Price Accounting - Tropicana

The total purchase consideration for the Tropicana Acquisition was $927.3 million. The purchase consideration in the acquisition was determined with reference to its acquisition date fair value.

 

Purchase consideration calculation (dollars in thousands)

 

 

 

Cash consideration paid

 

$

 

640,000

 

Lumière Loan

 

 

 

246,000

 

Cash paid to retire Tropicana's long-term debt

 

 

 

35,000

 

ERI portion of taxes due

 

 

 

6,333

 

Purchase consideration

 

$

 

927,333

 

 

14


 

The fair values are based on management’s analysis including work performed by third party valuation specialists. The following table summarizes the final allocation of the purchase consideration to the identifiable assets acquired and liabilities assumed of Tropicana, with the excess recorded as goodwill as of September 30, 2019 (dollars in thousands):  

 

Current and other assets

 

$

 

178,581

 

Property and equipment

 

 

 

436,416

 

Property subject to the financing obligation

 

 

 

957,300

 

Goodwill

 

 

 

211,232

 

Intangible assets (i)

 

 

 

247,976

 

Other noncurrent assets

 

 

 

54,570

 

Total assets

 

 

 

2,086,075

 

Current liabilities

 

 

 

(174,847

)

Financing obligation to GLPI

 

 

 

(957,300

)

Noncurrent liabilities

 

 

 

(26,595

)

Total liabilities

 

 

 

(1,158,742

)

Net assets acquired

 

$

 

927,333

 

 

 

(i)

Intangible assets consist of gaming licenses valued at $124.9 million, trade names valued at $67.1 million and player loyalty programs valued at $55.9 million.

 

During the three months ended September 30, 2019, the Company finalized its valuation procedures and adjusted the Tropicana preliminary purchase price accounting, as disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018, to their final values. The net impact of these changes was a $9.3 million decrease to goodwill. Changes included a $16.3 million increase to other noncurrent assets primarily related to certain long-term receivables offset by $7.0 million of other immaterial changes to liabilities.

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

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

The fair value of land (excluding the real property acquired by GLPI) was determined using the market approach, which arrives at an indication of value by comparing the site being valued to sites that have been recently acquired in arm’s-length transactions. The market data is then adjusted for any significant differences, to the extent known, between the identified comparable sites and the site being valued. Building and site improvements were valued under the cost approach using a direct cost model built on estimates of replacement cost. Personal property assets with an active and identifiable secondary market such as riverboats, gaming equipment, computer equipment and vehicles were valued using the market approach. Other personal property assets such as furniture, fixtures, computer software, and restaurant equipment were valued using the cost approach which is based on replacement or reproduction costs of the asset. The cost approach is an estimation of fair value developed by computing the current cost of replacing a property and subtracting any depreciation resulting from one or more of the following factors: physical deterioration, functional obsolescence, and/or economic obsolescence. The income approach incorporates all tangible and intangible property and served as a ceiling for the fair values of the acquired assets of the ongoing business enterprise, while still taking into account the premise of highest and best use. In the instance where the business enterprise value developed via the income approach was exceeded by the initial fair values of the underlying assets, an adjustment to reflect economic obsolescence was made to the tangible assets on a pro rata basis to reflect the contributory value of each individual asset to the enterprise as a whole.

The real estate assets that were sold to GLPI and leased back by the Company were adjusted to fair value concurrently with the acquisition of Tropicana. The fair value of the properties was determined utilizing the direct capitalization method of the income approach. In allocating the fair value to the underlying acquired assets, a fair value for the buildings and improvements was determined using the above mentioned cost approach method. To determine the underlying land value, the extraction method was applied wherein the fair value of the building and improvements was deducted from the fair value of the property as derived from the direct capitalization approach to determine the fair value of the land. The fair value of GLPI’s real estate assets was determined to be $957.3 million.

15


 

The fair value of the gaming licenses was determined using the multi period excess earnings or replacement cost methodology, based on whether the license resides in gaming jurisdictions where competition is limited to a specified number of licensed gaming operators. The excess earnings methodology is an income approach methodology that estimates the projected cash flows of the business attributable to the gaming license intangible asset, which is net of charges for the use of other identifiable assets of the business including working capital, fixed assets and other intangible assets. Under the respective state’s gaming legislation, the property specific licenses can only be acquired if a theoretical buyer were to acquire each existing facility. The existing licenses could not be acquired and used for a different facility. The properties’ estimated future cash flows were the primary assumption in the respective valuations. Cash flow estimates included net gaming revenue, gaming operating expenses, general and administrative expenses, and tax expense. The replacement cost methodology is a cost approach methodology based on replacement or reproduction cost of the gaming license as an indicator of fair value.

The Company has assigned an indefinite useful life to the gaming licenses, in accordance with its review of the applicable guidance of ASC 350. The Company considered, among other things, the expected use of the asset, the expected useful life of other related assets or asset groups, any legal, regulatory, or contractual provisions that may limit the useful life, the Company’s own historical experience in renewing similar arrangements, the effects of obsolescence, demand and other economic factors, and the maintenance expenditures required to obtain the expected cash flows. The Company determined that no legal, regulatory, contractual, competitive, economic or other factors limit the useful lives of these intangible assets. Tropicana had licenses in New Jersey, Missouri, Mississippi, Nevada, Indiana, and Louisiana. The renewal of each state’s gaming license depends on a number of factors, including payment of certain fees and taxes, providing certain information to the state’s gaming regulator, and meeting certain inspection requirements. However, the Company’s historical experience has not indicated, nor does the Company expect, any limitations regarding its ability to continue to renew each license. No other competitive, contractual, or economic factor limits the useful lives of these assets. Accordingly, the Company has concluded that the useful lives of these licenses are indefinite.

Trade names were valued using the relief from royalty method, which presumes that without ownership of such trademarks, the Company would have to make a stream of payments to a brand or franchise owner in return for the right to use their name. By virtue of this asset, the Company avoids any such payments and records the related intangible value of the Company’s ownership of the brand name. The primary assumptions in the valuation included revenue, pre-tax royalty rate, and tax expense. The Company has assigned an indefinite useful life to the trade names after considering, among other things, the expected use of the asset, the expected useful life of other related assets or asset groups, any legal, regulatory, or contractual provisions that may limit the useful life, the Company’s own historical experience in renewing similar arrangements, the effects of obsolescence, demand and other economic factors, and the maintenance expenditures required to obtain the expected cash flows. In that analysis, the Company determined that no legal, regulatory, contractual, competitive, economic or other factors limit the useful lives of these intangible assets.

Player loyalty programs were valued using the cost approach and the incremental cash flow method under the income approach. The incremental cash flow method is used to estimate the fair value of an intangible asset based on a residual cash flow notion. This method measures the benefits (e.g., cash flows) derived from ownership of an acquired intangible asset as if it were in place, as compared to the acquirer’s expected cash flows as if the intangible asset were not in place (i.e., with-and-without). The residual or net cash flows of the two models is ascribable to the intangible asset. The Company has estimated a 3-year useful life on the player loyalty programs.

Goodwill is the result of expected synergies from combining operations of the acquired and acquirer. The goodwill acquired is fully amortizable for tax purposes.

For the period from January 1, 2019 through September 30, 2019, Tropicana generated net revenues of $643.8 million and net income of $14.7 million.

 

Elgin

Acquisition Summary

On August 7, 2018, the Company completed its acquisition of one hundred percent of the partnership interests in Elgin. As a result of the Elgin Acquisition, Elgin became an indirect wholly-owned subsidiary of the Company. The Company purchased Elgin for $327.5 million plus a $1.3 million working capital adjustment. The Elgin Acquisition was financed using cash on hand and borrowings under the Company’s revolving credit facility.

16


 

Transaction expenses related to the Elgin Acquisition totaled $0.1 million and $2.1 million for the three months ended September 30, 2019 and 2018, respectively and $0.1 million and $3.4 million for the nine months ended September 30, 2019 and 2018, respectively.

 

Final Purchase Price Accounting – Elgin

The total purchase consideration for the Elgin Acquisition was $328.8 million. The purchase consideration in the acquisition was determined with reference to its acquisition date fair value.

 

Purchase consideration calculation (dollars in thousands)

 

 

 

Cash consideration paid

 

$

 

327,500

 

Working capital and other adjustments

 

 

 

1,304

 

Purchase consideration

 

$

 

328,804

 

 

The fair values are based on management’s analysis including work performed by third party valuation specialists. No changes were recorded during the nine months ended September 30, 2019.  The following table summarizes the allocation of the purchase consideration to the identifiable assets acquired and liabilities assumed of Elgin, with the excess recorded as goodwill as of September 30, 2019 (dollars in thousands):

 

Cash and cash equivalents

 

$

 

25,349

 

Property and equipment

 

 

 

60,792

 

Goodwill

 

 

 

59,774

 

Intangible assets (i)

 

 

 

205,296

 

Other noncurrent assets

 

 

 

915

 

Total assets

 

 

 

352,126

 

Current liabilities

 

 

 

(21,572

)

Noncurrent liabilities

 

 

 

(1,750

)

Total liabilities

 

 

 

(23,322

)

Net assets acquired

 

$

 

328,804

 

 

 

(i)

Intangible assets consist of gaming license valued at $163.9 million, trade names valued at $12.6 million and player relationships valued at $28.8 million.

Valuation methodologies under both a market and income approach used for the identifiable net assets acquired in the Elgin Acquisition made use of Level 3 inputs including discounted cash flows.

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

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

The cost approach is an estimation of fair value developed by computing the current cost of replacing a property and subtracting any depreciation resulting from one or more of the following factors: physical deterioration, functional obsolescence, and/or economic obsolescence. The income approach incorporates all tangible and intangible property and served as a ceiling for the fair values of the acquired assets of the ongoing business enterprise, while still taking into account the premise of highest and best use.

17


 

The Company has assigned an indefinite useful life to the gaming licenses, in accordance with its review of the applicable guidance of ASC 350. The fair value of the gaming license was determined using the multi period excess earnings method. The excess earnings methodology, which is an income approach methodology that allocates the projected cash flows of the business to the gaming license intangible assets less charges for the use of other identifiable assets of Elgin including working capital, fixed assets and other intangible assets. This methodology was considered appropriate as the gaming license is the primary asset of Elgin. The property’s estimated future cash flows were the primary assumption in the respective valuations. Cash flow estimates included net gaming revenue, gaming operating expenses, general and administrative expenses, and tax expense. The renewal of the gaming license depends on a number of factors, including payment of certain fees and taxes, providing certain information to the state’s gaming regulator, and meeting certain inspection requirements. However, the Company’s historical experience has not indicated, nor does the Company expect, any limitations regarding its ability to continue to renew the license. No other competitive, contractual, or economic factor limits the useful lives of this asset. Accordingly, the Company has concluded that the useful life of this license is indefinite.

The player loyalty program was valued using the cost approach and the incremental cash flow method under the income approach. The incremental cash flow method is used to estimate the fair value of an intangible asset based on a residual cash flow notion. This method measures the benefits (e.g., cash flows) derived from ownership of an acquired intangible asset as if it were in place, as compared to the acquirer’s expected cash flows as if the intangible asset were not in place (i.e., with-and-without). The residual or net cash flows of the two models is ascribable to the intangible asset. The Company has estimated a 4-year useful life on the player loyalty programs.

The trade name was valued using the relief‑from‑royalty method. The primary assumptions in the valuation included revenue, pre-tax royalty rate, and tax expense. The Company has assigned the trade name an indefinite useful life after considering, among other things, the expected use of the asset, the expected useful life of other related assets or asset groups, any legal, regulatory, or contractual provisions that may limit the useful life, the Company’s own historical experience in renewing similar arrangements, the effects of obsolescence, demand and other economic factors, and the maintenance expenditures required to obtain the expected cash flows. In that analysis, the Company determined that no legal, regulatory, contractual, competitive, economic or other factors limit the useful lives of these intangible assets.

Goodwill is the result of expected synergies from combining operations of the acquired and acquirer. The goodwill acquired is fully amortizable for tax purposes.

For the period from January 1, 2019 through September 30, 2019, Elgin generated net revenues of $115.7 million and net income of $17.4 million.

Unaudited Pro Forma Information

Tropicana

The following unaudited pro forma information presents the results of operations of the Company for the nine months ended September 30, 2018, as if only the Tropicana Acquisition had occurred on January 1, 2017 (in thousands).

 

 

 

Nine Months Ended

 

 

 

September 30, 2018

 

Net operating revenues

 

$

 

2,063,604

 

Net income

 

 

 

78,730

 

 

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

Elgin

The following unaudited pro forma information presents the results of operations of the Company for the nine months ended September 30, 2018, as if only the Elgin Acquisition had occurred on January 1, 2017 (in thousands).

 

 

 

Nine Months Ended

 

 

 

September 30, 2018

 

Net operating revenues

 

$

 

1,481,188

 

Net income

 

 

 

108,461

 

 

18


 

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

Note 5. Assets Held for Sale

Twin River Worldwide Holdings, Inc.

 

On July 10, 2019, the Company entered into a definitive agreement to sell the equity interests of Rainbow Casino Vicksburg Partnership, L.P. and IOC-Kansas City, L.L.C., the entities that hold Lady Luck Casino Vicksburg and Isle of Capri Casino Kansas City, to Twin River Worldwide Holdings, Inc. for approximately $230 million, subject to a working capital adjustment.

Century Casinos, Inc.

 

On June 17, 2019, the Company entered into definitive agreements to sell the real property relating to Mountaineer, Cape Girardeau, and Caruthersville to VICI Properties, Inc. (“VICI”) for approximately $278 million and, immediately following the consummation of the sale such real property, sell all of the outstanding equity interests of Mountaineer Park, Inc., IOC-Caruthersville, LLC and IOC-Cape Girardeau, LLC to Century Casinos, Inc. for approximately $107 million, subject to a customary working capital adjustment.

 

The sales of Mountaineer, Cape Girardeau, Caruthersville, Kansas City and Vicksburg met the requirements for presentation as assets held for sale under generally accepted accounting principles as of September 30, 2019. However, they did not meet the requirements for presentation as discontinued operations and are included in income from continuing operations.

 

The divestitures are subject to receipt of required regulatory approvals and other customary closing conditions. The divestitures are expected to close in early 2020 subject to satisfaction of closing conditions.

 

The assets and liabilities held for sale, accounted for at carrying value as it was lower than fair value, were as follows as of September 30, 2019 (in thousands):

 

 

 

September 30, 2019

 

 

 

Mountaineer

 

 

Cape Girardeau

 

 

Caruthersville

 

 

Kansas City

 

 

Vicksburg

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

 

3,122

 

 

$

 

327

 

 

$

 

159

 

 

$

 

240

 

 

$

 

72

 

 

$

 

3,920

 

Due from affiliates

 

 

 

106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

106

 

Inventories

 

 

 

1,058

 

 

 

 

716

 

 

 

 

233

 

 

 

 

46

 

 

 

 

131

 

 

 

 

2,184

 

Right-of-use assets

 

 

 

341

 

 

 

 

148

 

 

 

 

7

 

 

 

 

41,389

 

 

 

 

 

 

 

 

41,885

 

Prepaid expenses and other

 

 

 

14,583

 

 

 

 

294

 

 

 

 

148

 

 

 

 

273

 

 

 

 

4,210

 

 

 

 

19,508

 

Property and equipment, net

 

 

 

66,284

 

 

 

 

77,007

 

 

 

 

15,323

 

 

 

 

38,724

 

 

 

 

31,287

 

 

 

 

228,625

 

Goodwill

 

 

 

3,854

 

 

 

 

18,790

 

 

 

 

18,276

 

 

 

 

39,623

 

 

 

 

8,806

 

 

 

 

89,349

 

Other intangibles, net

 

 

 

44,400

 

 

 

 

27,788

 

 

 

 

55,145

 

 

 

 

90,329

 

 

 

 

2,708

 

 

 

 

220,370

 

Assets held for sale

 

$

 

133,748

 

 

$

 

125,070

 

 

$

 

89,291

 

 

$

 

210,624

 

 

$

 

47,214

 

 

$

 

605,947

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

409

 

 

$

 

495

 

 

$

 

252

 

 

$

 

206

 

 

$

 

169

 

 

$

 

1,531

 

Accrued payroll and related

 

 

 

1,131

 

 

 

 

531

 

 

 

 

250

 

 

 

 

435

 

 

 

 

234

 

 

 

 

2,581

 

Accrued property and other taxes

 

 

 

1,137

 

 

 

 

952

 

 

 

 

299

 

 

 

 

484

 

 

 

 

753

 

 

 

 

3,625

 

Short-term lease obligation

 

 

 

171

 

 

 

 

54

 

 

 

 

6

 

 

 

 

3,057

 

 

 

 

 

 

 

 

3,288

 

Long-term lease obligation

 

 

 

170

 

 

 

 

94

 

 

 

 

1

 

 

 

 

38,332

 

 

 

 

 

 

 

 

38,597

 

Accrued other liabilities

 

 

 

2,917

 

 

 

 

1,269

 

 

 

 

567

 

 

 

 

1,392

 

 

 

 

291

 

 

 

 

6,436

 

Liabilities related to assets held for sale

 

$

 

5,935

 

 

$

 

3,395

 

 

$

 

1,375

 

 

$

 

43,906

 

 

$

 

1,447

 

 

$

 

56,058

 

 

19


 

The following information presents the net operating revenues and net income for the Company’s properties that are held for sale (in thousands):

 

 

 

Three Months ended September 30, 2019

 

 

 

Mountaineer

 

 

Cape Girardeau

 

 

Caruthersville

 

 

Kansas City

 

 

Vicksburg

 

Net operating revenues

 

$

 

32,658

 

 

$

 

14,097

 

 

$

 

8,821

 

 

$

 

15,278

 

 

$

 

5,006

 

Net income (loss)

 

 

 

3,205

 

 

 

 

2,165

 

 

 

 

1,317

 

 

 

 

2,672

 

 

 

 

(401

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months ended September 30, 2019

 

 

 

Mountaineer

 

 

Cape Girardeau

 

 

Caruthersville

 

 

Kansas City

 

 

Vicksburg

 

Net operating revenues

 

$

 

95,530

 

 

$

 

43,839

 

 

$

 

26,399

 

 

$

 

47,677

 

 

$

 

15,573

 

Net income (loss)

 

 

 

7,242

 

 

 

 

5,857

 

 

 

 

5,004

 

 

 

 

7,701

 

 

 

 

(1,195

)

 

Churchill Downs Incorporated

On February 28, 2018, the Company entered into definitive agreements to sell substantially all of the assets and liabilities of Presque Isle Downs and Vicksburg to Churchill Downs Incorporated (“CDI”). Under the terms of the agreements, CDI agreed to purchase Presque Isle Downs for approximately $178.9 million and Vicksburg for approximately $50.6 million, in each case subject to a customary working capital adjustment. In conjunction with the classification of Vicksburg’s operations as assets held for sale at June 30, 2018 as a result of the announced sale to CDI, an impairment charge totaling $9.8 million was recorded due to the carrying value exceeding the estimated net sales proceeds.

The definitive agreements provided that the divestitures were subject to receipt of required regulatory approvals, termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) and other customary closing conditions, including, in the case of Presque Isle Downs, the prior closing of the sale of Vicksburg or the entry into an agreement to acquire another asset of the Company. On May 7, 2018, the Company and CDI each received a Request for Additional Information and Documentary Materials, often referred to as a “Second Request,” from the Federal Trade Commission in connection with its review of the Vicksburg acquisition.

On July 6, 2018, in consideration of the time and expense needed to reply to the Second Request, the Company and CDI entered into a termination agreement and release pursuant to which the parties agreed to terminate the asset purchase agreement with respect to Vicksburg and to enter into an asset purchase agreement pursuant to which CDI would acquire and assume the rights and obligations to operate Nemacolin (the “Vicksburg Termination Agreement”). The Vicksburg Termination Agreement also provided that CDI would pay the Company a $5.0 million termination fee upon execution of a definitive agreement with respect to the Nemacolin transaction, which was recorded as proceeds from terminated sale on the Consolidated Statements of Income.  On August 10, 2018, the Company entered into a definitive agreement to sell substantially all of the assets and liabilities of Nemacolin to CDI.  Under the terms of the agreement, CDI agreed to purchase Nemacolin for cash consideration of approximately $0.1 million, subject to a customary working capital adjustment. As a result of the agreement to sell Nemacolin, an impairment charge of $3.8 million was recorded in the third quarter of 2018 due to the carrying value of the net property and equipment being sold exceeding the estimated net sales proceeds.

The sale of Presque Isle Downs closed on January 11, 2019 resulting in a gain on sale of $22.1 million, net of final working capital adjustments, for the nine months ended September 30, 2019. The sale of Nemacolin closed on March 8, 2019 resulting in a gain on sale of $0.1 million, net of final working capital adjustments, for the nine months ended September 30, 2019.

Prior to the respective closing dates, the divestitures of Nemacolin and Presque Isle Downs, both of which were reported in the East segment, met the requirements for presentation as assets held for sale under generally accepted accounting principles. However, they did not meet the requirements for presentation as discontinued operations. Due to the termination of the Vicksburg sale, Vicksburg was no longer presented as an asset held for sale as of December 31, 2018.

20


 

The assets and liabilities held for sale, accounted for at carrying value as it was lower than fair value, were as follows as of December 31, 2018 (in thousands):

 

 

 

December 31, 2018

 

 

 

Nemacolin

 

 

Presque Isle

Downs

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

 

272

 

 

$

 

2,208

 

 

$

 

2,480

 

Inventories

 

 

 

79

 

 

 

 

1,607

 

 

 

 

1,686

 

Prepaid expenses and other

 

 

 

370

 

 

 

 

773

 

 

 

 

1,143

 

Property and equipment, net

 

 

 

1,784

 

 

 

 

70,134

 

 

 

 

71,918

 

Goodwill

 

 

 

 

 

 

 

3,122

 

 

 

 

3,122

 

Other intangibles, net

 

 

 

 

 

 

 

75,422

 

 

 

 

75,422

 

Assets held for sale

 

$

 

2,505

 

 

$

 

153,266

 

 

$

 

155,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

147

 

 

$

 

683

 

 

$

 

830

 

Accrued payroll and related

 

 

 

838

 

 

 

 

596

 

 

 

 

1,434

 

Accrued property and other taxes

 

 

 

552

 

 

 

 

71

 

 

 

 

623

 

Accrued other liabilities

 

 

 

1,628

 

 

 

 

3,659

 

 

 

 

5,287

 

Other long-term liabilities

 

 

 

105

 

 

 

 

 

 

 

 

105

 

Long-term obligation

 

 

 

2,412

 

 

 

 

 

 

 

 

2,412

 

Liabilities related to assets held for sale

 

$

 

5,682

 

 

$

 

5,009

 

 

$

 

10,691

 

 

The following information presents the net operating revenues and net income (loss) of Presque Isle Downs and Nemacolin prior to the respective divestitures (in thousands):

 

 

 

Three Months ended September 30, 2018

 

 

 

Nine Months ended September 30, 2018

 

 

 

Presque Isle Downs

 

 

Nemacolin

 

 

Presque Isle Downs

 

 

Nemacolin

 

Net operating revenues

 

$

 

37,685

 

 

$

 

8,866

 

 

$

 

107,738

 

 

$

 

25,799

 

Net income (loss)

 

 

 

5,713

 

 

 

 

(2,745

)

 

 

 

11,909

 

 

 

 

(3,213

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Presque Isle Downs

 

 

Nemacolin

 

 

 

 

 

 

 

 

 

 

 

Net operating revenues

 

$

 

3,235

 

 

$

 

4,836

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

(42

)

 

 

 

(754

)

 

 

 

 

 

 

 

 

 

 

 

 

These amounts include historical operating results, adjusted to eliminate the internal allocation of interest expense that was not be assumed by the buyer.

 

Note 6. Stock-Based Compensation and Stockholders’ Equity

Share Repurchase Program

In November 2018, the Company’s Board of Directors authorized a $150 million common stock repurchase program (the “Share Repurchase Program”) pursuant to which the Company may, from time to time, repurchase shares of common stock on the open market (either with or without a 10b5-1 plan) or through privately negotiated transactions. The Share Repurchase Program has no time limit and may be suspended or discontinued at any time without notice. There is no minimum number of shares of common stock that the Company is required to repurchase under the Share Repurchase Program.

The Company acquired 223,823 shares of common stock at an aggregate value of $9.1 million and an average of $40.80 per share during the year ended December 31, 2018. NaN shares were repurchased during the nine months ended September 30, 2019.

21


 

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation. Total stock-based compensation expense in the accompanying Consolidated Statements of Income totaled $4.3 million and $2.5 million during the three months ended September 30, 2019 and 2018, respectively, and $15.7 million and $9.6 million during the nine months ended September 30, 2019 and 2018, respectively. These amounts are included in corporate expenses and, in the case of certain property positions, general and administrative expenses in the Company’s Consolidated Statements of Income. We recognized an increase in income tax expense of $21 thousand for the three months ended September 30, 2019, related to stock-based compensation. We recognized a reduction in income tax expense of $0.4 million for the three months ended September 30, 2018, for excess tax benefits related to stock-based compensation. We recognized a reduction in income tax expense of $1.3 million and $4.9 million during the nine months ended September 30, 2019 and 2018, respectively, for excess tax benefits related to stock-based compensation.

A summary of the restricted stock unit (RSU) activity for the nine months ended September 30, 2019 is presented in the following table:

 

 

 

 

 

Restricted Stock Units

 

 

 

 

 

Units

 

 

 

Weighted-

Average Grant

Date

Fair Value

 

 

 

 

 

 

 

 

 

 

(in millions)

 

 

Unvested outstanding as of December 31, 2018

 

 

 

1,283,372

 

 

$

 

23.93

 

 

Granted (1)

 

 

 

457,941

 

 

 

 

45.23

 

 

Vested

 

 

 

(520,183

)

 

 

 

18.69

 

 

Forfeited

 

 

 

(19,453

)

 

 

 

23.79

 

 

Unvested outstanding as of September 30, 2019

 

 

 

1,201,677

 

 

$

 

34.26

 

 

 

 

(1)

Included are 30,135 RSUs granted to non-employee members of the Board of Directors during the nine months ended September 30, 2019.

 

As of September 30, 2019 and 2018, the Company had $22.6 million and $11.8 million, respectively, of unrecognized compensation expense. The RSUs are expected to be recognized over a weighted-average period of 1.48 years and 1.15 years, respectively.

 

There was no ERI stock option activity for the nine months ended September 30, 2019. Outstanding options as of September 30, 2019 totaled 135,956, of which 125,331 options were exercisable.

 

 

Note 7. Investments in and Advances to Unconsolidated Affiliates

Pompano Joint Venture

In April 2018, the Company entered into a joint venture with Cordish Companies (“Cordish”) to master plan and develop a mixed-use entertainment and hospitality destination expected to be located on unused land adjacent to the casino and racetrack at the Company’s Pompano property. As the managing member, Cordish will operate the business and manage the development, construction, financing, marketing, leasing, maintenance and day-to-day operation of the various phases of the project. Additionally, Cordish will be responsible for the development of the master plan for the project with the Company’s input and will submit it for the Company’s review and approval. The Company and Cordish have made cash contributions of $500,000 each and could be required to make additional contributions to a maximum of $2.0 million ($1.0 million per member) at the request of the managing member. The Company has agreed to contribute approximately 130 to 200 acres of land to the joint venture for the project. While the Company holds a 50% variable interest in the joint venture, it is not the primary beneficiary; as such the investment in the joint venture is accounted for using the equity method. The Company participates evenly with Cordish in the profits and losses of the joint venture, which is included in income (loss) from unconsolidated affiliates on the Consolidated Statements of Income. At September 30, 2019 and December 31, 2018, the Company’s investment in the joint venture including contributions and capitalized professional costs totaled $1.1 million and $0.6 million, respectively, recorded in investment in and advances to unconsolidated affiliates on the Consolidated Balance Sheets.

22


 

William Hill

In September 2018, the Company entered into a 25-year agreement, which became effective January 29, 2019, with William Hill PLC and William Hill US, its U.S. subsidiary (together, “William Hill”) pursuant to which the Company (i) granted to William Hill the right to conduct betting activities in retail channels and under the Company’s first skin and third skin for online channels with respect to the Company’s current and future properties located in the United States and the territories and possessions of the United States, including Puerto Rico and the U.S. Virgin Islands and (ii) agreed that William Hill will have the right to conduct real money online gaming activities utilizing the Company’s second skin available with respect to properties in such territories.  Pursuant to the terms of the agreement, in January 2019 the Company received a 20% ownership interest in William Hill US as well as 13.4 million ordinary shares of William Hill PLC, which carry certain time restrictions on when they can be sold. Additionally, the Company receives a profit share from the operations of betting and other gaming activities associated with the Company’s properties. “Skin” in the context of this agreement refers to Eldorado’s ability to grant to William Hill an online channel that allows William Hill to operate online casino and sports gaming activities in reliance on, and utilizing the benefit of, any licenses granted to Eldorado or its subsidiaries. As of September 30, 2019, based on the Company’s existing sportsbook operations with William Hill, the Company’s receivable from William Hill totaled $2.7 million including $0.1 million in assets held for sale, the remaining balance is reflected in due from affiliates on the Consolidated Balance Sheets.

The Company is accounting for its investment in William Hill US under the equity method. The fair value of the Company’s initial investment in William Hill US of $128.9 million at January 29, 2019 was determined using Level 3 inputs. As of September 30, 2019, the carrying value of the Company’s interest in William Hill US was $127.5 million recorded in investment in and advances to unconsolidated affiliates on the Consolidated Balance Sheets.

As of September 30, 2019, the fair value of the William Hill PLC shares totaled $27.1 million, net of an unrealized loss of $0.2 million, and included in other assets, net on the Consolidated Balance Sheets. The Company also recorded deferred revenue associated with the William Hill US and William Hill PLC shares and is recognizing revenue on a straight-line basis over the 25-year agreement term. The Company recognized revenue of $1.5 million and $3.9 million during the three and nine months ended September 30, 2019, respectively. As of September 30, 2019, the balance of the William Hill deferred revenue totaled $143.6 million and is recorded in other long-term liabilities on the Consolidated Balance Sheets.

 

Note 8. Intangible Assets, net and Other Long-Term Assets

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

 

 

 

September 30,

 

 

December 31,

 

 

 

 

 

 

2019

 

 

2018

 

 

 

Useful Life

Goodwill

 

$

 

909,717

 

 

$

 

1,008,316

 

 

 

Indefinite

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming licenses

 

$

 

893,271

 

 

$

 

1,090,682

 

 

 

Indefinite

Trade names

 

 

 

165,479

 

 

 

 

187,929

 

 

 

Indefinite

Player loyalty programs

 

 

 

97,035

 

 

 

 

105,005

 

 

 

3 - 4 years

Subtotal

 

 

 

1,155,785

 

 

 

 

1,383,616

 

 

 

 

Accumulated amortization player loyalty programs

 

 

 

(36,930

)

 

 

 

(21,610

)

 

 

 

Total gaming licenses and other intangible assets, net

 

$

 

1,118,855

 

 

$

 

1,362,006

 

 

 

 

 

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

 

Amortization expense with respect to player loyalty programs for the three months ended September 30, 2019 and 2018 totaled $7.6 million and $2.4 million, respectively, and $22.8 million and $5.1 million for the nine months ended September 30, 2019 and 2018, respectively, which is included in depreciation and amortization in the Consolidated Statements of Income. Such amortization expense is expected to be $7.7 million for the remainder of 2019 and $27.4 million, $21.2 million and $4.2 million for the years ended December 31, 2020, 2021 and 2022, respectively.

 

23


 

Goodwill represents the excess of the purchase prices of acquiring MTR Gaming, Isle, Elgin and Tropicana over the fair market value of the net assets acquired. In conjunction with the classification of Vicksburg’s operations as assets held for sale at June 30, 2018 (see Note 5) as a result of the announced sale to CDI, an impairment charge totaling $9.8 million was recorded due to the carrying value exceeding the estimated net sales proceeds. The impairment reduced the value of goodwill in the South segment in 2018.

 

The September 30, 2019 balances exclude assets held for sale recorded in 2019 (see Note 5), as well as the assets associated with the Presque Isle Downs and Nemacolin divestitures, which accounts for the changes in goodwill and indefinite-lived intangible assets.

Other Assets, Net 

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

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

CRDA bonds and deposits, net

 

$

 

4,974

 

 

$

 

6,694

 

Unamortized debt issuance costs - Revolving

   Credit Facility

 

 

 

7,903

 

 

 

 

9,533

 

Non-operating real property

 

 

 

1,957

 

 

 

 

17,880

 

Long-term prepaid rent

 

 

 

 

 

 

 

20,198

 

Restricted cash and investments

 

 

 

36,761

 

 

 

 

15,064

 

Other

 

 

 

27,284

 

 

 

 

14,077

 

Total other assets, net

 

$

 

78,879

 

 

$

 

83,446

 

 

The Casino Reinvestment Development Authority (“CRDA”) bonds have various contractual maturities that range up to 40 years. Actual maturities may differ from contractual maturities because of prepayment rights. The Company treats CRDA bonds as held-to-maturity since the Company has the ability and the intent to hold these bonds to maturity and under the CRDA, the Company is not permitted to do otherwise. The Company analyzes the CRDA bonds for recoverability on a quarterly basis based on management's historical collection experience and other information received from the CRDA. If indications exist that the CRDA bond is impaired, additional valuation allowances are recorded.

 

Non-operating real property consists principally of land and undeveloped properties for which the Company has designated as non-operating and has declared its intent to sell such assets. As a result of a pending sale offer for certain non-operating real property located in Pennsylvania, the Company recognized an impairment charge of $1.0 million for the nine months ended September 30, 2019. Non-operating land totaling $9.8 million associated with Mountaineer is included in assets held for sale as of September 30, 2019.

 

Approximately ten acres of the approximately 20 acres on which Tropicana Evansville is situated is subject to a lease with the City of Evansville, Indiana. Under the terms of the agreement, a pre-payment of lease rent of $25 million was due at the commencement of the construction project. The prepayments will be applied against future rent in equal monthly amounts over a period of 120 months which commenced upon the opening of the property in January 2018.  The current term of the lease expires November 30, 2027. As of December 31, 2018, this prepaid rent was included in long-term prepaid rent. However, upon adoption of the new lease accounting guidance the prepaid rent is now included with the Company’s ROU assets.

 

In September 2018, we entered into a 25-year agreement, which became effective January 2019, with William Hill pursuant to which we received 13.4 million ordinary shares of William Hill PLC which carry certain time restrictions on when they can be sold. As of September 30, 2019, the fair value of the William Hill PLC shares totaled $27.1 million, net of an unrealized loss of $0.2 million, and is included in other assets, net on the Consolidated Balance Sheets.

 

24


 

Note 9. Income Taxes

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

 

For the three and nine months ended September 30, 2019, the Company’s tax expense was $18.1 million and $38.9 million, respectively, and for the three and nine months ended September 30, 2018, the Company’s tax expense was $20.0 million and $31.3 million, respectively. For the three and nine months ended September 30, 2019, the difference between the effective rate and the statutory rate is attributed primarily to excess tax benefits associated with stock compensation, state and local income taxes and changes in the valuation allowance. For the three and nine months ended September 30, 2018, the difference between the effective rate and the statutory rate is attributed primarily to non-deductible expenses and state and local income taxes.

As of September 30, 2019, there were 0 unrecognized tax benefits and the Company does not expect a significant increase or decrease to the total amounts of unrecognized tax benefits within the next twelve months. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.

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

 

Note 10. Long-Term Financing Obligation

As of December 31, 2018, under the prior lease accounting standard the Company’s Master Lease with GLPI was accounted for as a failed sale-leaseback financing obligation equal to the fair value of the leased real estate assets and liabilities acquired in purchase accounting. Upon adoption of ASC 842 (see Note 2), the Company re-evaluated the Master Lease and determined this existing failed sale-leaseback transaction will continue to be accounted for as a financing obligation.

The fair value of the real estate assets and the related failed sale-leaseback financing obligations were estimated based on the present value of the estimated future lease payments over the lease term of 35 years, including renewal options, using an imputed discount rate of approximately 10.2%. The value of the failed sale-leaseback financing obligations is dependent upon assumptions regarding the amount of the lease payments and the estimated discount rate of the lease payments required by a market participant.

The Master Lease provides for the lease of land, buildings, structures and other improvements on the land (including barges and riverboats), easements and similar appurtenances to the land and improvements relating to the operation of the leased properties. The Master Lease provides for an initial term of fifteen years with no purchase option. At the Company’s option, the Master Lease may be extended for up to four five-year renewal terms beyond the initial 15-year term. If we elect to renew the term of the Master Lease, the renewal will be effective as to all, but not less than all, of the leased property then subject to the Master Lease. The Company does not have the ability to terminate its obligations under the Master Lease prior to its expiration without GLPI’s consent.

The rent payable under the Master Lease is comprised of “Base Rent” and “Percentage Rent.”  Base rent is the sum of:

 

Building Base Rent: a fixed component equal to $60.9 million during the first year of the Master Lease, and thereafter escalated annually by 2%, subject to a cap that would cause the preceding year’s adjusted revenue to rent ratio for the properties in the aggregate not to fall below 1.20:1.00 for the first five years of the Master Lease and 1.80:1.00 thereafter; plus

 

Land Base Rent: an additional fixed component equal to $13.4 million, subject to adjustment in the event of the termination of the Master Lease with respect to any of the leased properties.

The percentage rent payable under the Master Lease is adjusted every two years based on the actual net revenues of the leased properties during the two-year period then ended. The initial variable rent, which is fixed for the first two years, is $13.4 million per year. The actual percentage increase is based on actual performance and is subject to change.

The initial annual rent under the terms of the lease is approximately $87.6 million.

25


 

Under the Master Lease, the Company is required to pay the following, among other things: lease payments to the underlying ground lessor for properties that are subject to ground leases, facility maintenance costs, all insurance premiums for insurance with respect to the leased properties and the business conducted on the leased properties, taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor and all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties).

The estimated future lease payments include the minimum lease payments and were adjusted to reflect estimated lease payments as described in the agreements, including an annual escalator of up to 2%.

The future minimum payments related to the Master Lease financing obligation with GLPI at September 30, 2019 were as follows (in thousands):

 

2019 (excluding the nine months ended September 30, 2019)

 

$

 

22,214

 

2020

 

 

 

89,168

 

2021

 

 

 

90,417

 

2022

 

 

 

91,691

 

2023

 

 

 

92,990

 

Thereafter

 

 

 

3,506,672

 

Total future payments

 

 

 

3,893,152

 

Less: amounts representing interest at 10.2%

 

 

 

(3,345,270

)

Plus: residual values

 

 

 

420,100

 

Financing obligation to GLPI

 

$

 

967,982

 

 

Total payments and interest expense related to the Master Lease were $21.9 million and $24.6 million, respectively, for the three months ended September 30, 2019, and $65.7 million and $73.8 million, respectively, for the nine months ended September 30, 2019. For the initial periods of the Master Lease, cash payments are less than the interest expense recognized, which causes the failed sale-leaseback obligation to increase during the initial years of the lease term.

 

The Master Lease contains certain covenants, including minimum capital improvement expenditures. As of September 30, 2019, we were in compliance with all of the covenants under the Master Lease.

 

 

Note 11. Long-Term Debt

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

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Term Loan

 

$

 

886,750

 

 

$

 

956,750

 

Less: Unamortized discount and debt issuance costs

 

 

 

(14,968

)

 

 

 

(18,426

)

Net

 

 

 

871,782

 

 

 

 

938,324

 

6% Senior Notes due 2026

 

 

 

600,000

 

 

 

 

600,000

 

Less: Unamortized debt issuance costs

 

 

 

(18,487

)

 

 

 

(19,630

)

Net

 

 

 

581,513

 

 

 

 

580,370

 

6% Senior Notes due 2025

 

 

 

875,000

 

 

 

 

875,000

 

Plus: Unamortized debt premium

 

 

 

21,049

 

 

 

 

23,491

 

Less: Unamortized debt issuance costs

 

 

 

(16,570

)

 

 

 

(18,405

)

Net

 

 

 

879,479

 

 

 

 

880,086

 

7% Senior Notes due 2023

 

 

 

375,000

 

 

 

 

375,000

 

Less: Unamortized discount and debt issuance costs

 

 

 

(5,239

)

 

 

 

(6,075

)

Net

 

 

 

369,761

 

 

 

 

368,925

 

Revolving Credit Facility

 

 

 

 

 

 

 

245,000

 

Lumière Loan

 

 

 

246,000

 

 

 

 

246,000

 

Long-term notes and other payables

 

 

 

2,658

 

 

 

 

3,030

 

Less: Current portion

 

 

 

(238

)

 

 

 

(462

)

Total long-term debt

 

$

 

2,950,955

 

 

$

 

3,261,273

 

 

 

26


 

Amortization of the debt issuance costs and the discount and/or premium associated with our indebtedness totaled $1.9 million and $1.2 million for the three months ended September 30, 2019 and 2018, respectively, and $5.7 million and $3.8 million for the nine months ended September 30, 2019 and 2018, respectively. Amortization of debt issuance costs is computed using the effective interest method and is included in interest expense.

 

Scheduled maturities of long‑term debt are $0.1 million for the remainder of 2019, $246.2 million in 2020, $0.2 million in 2021, $0.2 million in 2022, $375.1 million in 2023, and $2.4 billion thereafter.

 

Term Loan and Revolving Credit Facility

The Company is party to a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto dated as of April 17, 2017 (as amended the “Credit Facility”), consisting of a $1.45 billion term loan facility (the “Term Loan Facility” or “Term Loan”) and a $500.0 million revolving credit facility (the “Revolving Credit Facility”). The Company’s obligations under the Revolving Credit Facility will mature on October 1, 2023. The Company’s obligations under the Term Loan Facility will mature on April 17, 2024. The Company was required to make quarterly principal payments of $3.6 million on the Term Loan Facility on the last day of each fiscal quarter beginning on June 30, 2017 but satisfied this requirement as a result of the principal prepayment of $444.5 million on September 13, 2017 in conjunction with the issuance of the additional 6% Senior Notes due 2025. In addition, the Company is required to make mandatory payments of amounts outstanding under the Credit Facility with the proceeds of certain casualty events, debt issuances, and asset sales and, depending on its consolidated total leverage ratio, the Company may be required to apply a portion of its excess cash flow to repay amounts outstanding under the Credit Facility.

As of September 30, 2019, the Company had $886.8 million outstanding on the Term Loan and 0 outstanding balance under the Revolving Credit Facility. The Company had $483.7 million of available borrowing capacity, after consideration of $16.3 million in outstanding letters of credit under its Revolving Credit Facility as of September 30, 2019. The Company applied approximately $150.0 million of proceeds from the sale of Presque Isle Downs to repay amounts outstanding under the Revolving Credit Facility.  Pursuant to the terms of the indentures governing the Company’s senior notes, the Company will be required to make an offer to purchase a portion of its outstanding senior notes with the excess proceeds from such sale unless it applies the net proceeds of such sale to either permanently repay outstanding indebtedness or make specified acquisitions or capital expenditures within 365 days of the sale of Presque Isle Downs. The Company anticipates applying the proceeds of the Presque Isle Downs sale to permanently repay indebtedness and make qualifying capital expenditures prior to the anniversary of the sale.

The interest rate per annum applicable to loans under the Revolving Credit Facility are, at our option, either LIBOR plus a margin ranging from 1.75% to 2.50% or a base rate plus a margin from 0.75% to 1.50%, the margin is based on our total leverage ratio. The interest rate per annum applicable to the loans under the Term Loan Facility is, at our option, either LIBOR plus 2.25%, or a base rate plus 1.25%; provided, however, that in no event will LIBOR be less than zero or the base rate be less than 1.00%. Additionally, the Company pays a commitment fee on the unused portion of the Revolving Credit Facility of 0.50% per annum. As of September 30, 2019, the weighted average interest rate on the Term Loan was 4.31%.  

Senior Notes

6% Senior Notes due 2026

On September 20, 2018, Delta Merger Sub, Inc. (“Escrow Issuer”), a Delaware corporation and a wholly-owned subsidiary of the Company, issued $600 million aggregate principal amount of 6.0% senior notes due 2026 (the “6% Senior Notes due 2026”) pursuant to an indenture, dated as of September 20, 2018 (the “2026 Indenture”), between Escrow Issuer and U.S. Bank, National Association, as Trustee. Interest on the 6% Senior Notes due 2026 will be paid every semi-annually in arrears on March 15 and September 15.

27


 

The 6% Senior Notes due 2026 were general unsecured obligations of Escrow Issuer’s upon issuance and, upon the assumption of such obligations by the Company and the subsidiary guarantors (the “Guarantors”) upon consummation of the Tropicana Acquisition, became general unsecured obligations of the Company and the Guarantors, ranking senior in right of payment to all of the Company’s existing and future debt that is expressly subordinated in right of payment to the 6% Senior Notes due 2026 and the guarantees, ranking equally in right of payment with all of the applicable obligor’s existing and future senior liabilities, including the obligations under the Company’s existing 7% Senior Notes due 2023 and 6% Senior Notes due 2025, and are effectively subordinated to all of the applicable obligor’s existing and future secured debt, including indebtedness under the Company’s Term Loan and Revolving Credit Facility and the Lumière Note (as defined in the 2026 Indenture), in each case, to the extent of the value of the collateral securing such debt. In addition, the 6% Senior Notes due 2026 and the related guarantees are structurally subordinated to all existing and future indebtedness and other liabilities of the Company’s subsidiaries and other entities in which the Company has an equity interest that do not guarantee the 6% Senior Notes due 2026 (other than indebtedness and liabilities owed to the Company or the Guarantors).

6% Senior Notes due 2025

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

On September 13, 2017, the Company issued an additional $500.0 million principal amount of its 6% Senior Notes due 2025 at an issue price equal to 105.5% of the principal amount of the 6% Senior Notes due 2025. The additional notes were issued pursuant to the 2025 Indenture that governs the 6% Senior Notes due 2025. The Company used the proceeds of the offering to repay $78.0 million of outstanding borrowings under the previous revolving credit facility and used the remainder to repay $444.5 million outstanding borrowings under the previous term loan facility and related accrued interest.

 

7% Senior Notes due 2023

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

Lumière Loan

We borrowed $246 million from GLPI to fund the purchase price of the real estate underlying Lumière. The Lumière Loan bears interest at a rate equal to (i) 9.09% until October 1, 2019 and (ii) 9.27% until October 1, 2020, and matures on October 1, 2020. The Lumière Loan was secured by a first priority mortgage on the Lumière real property that was released pursuant to its terms on October 1, 2019. In connection with the issuance of the Lumière Loan, we agreed to use our commercially reasonable efforts to transfer one or more of the Grand Victoria Casino, Isle Casino Bettendorf, Isle Casino Hotel Waterloo, Isle of Capri Lula, Lady Luck Casino Vicksburg and Mountaineer Casino, Racetrack and Resort or such other property or properties mutually acceptable to us and GLPI, provided that the aggregate value of such property, individually or collectively, is at least $246 million (the “Replacement Property”), to GLPI with a simultaneous leaseback to us of such Replacement Property. In connection with such Replacement Property sale, (i) we and GLPI will enter into an amendment to the Master Lease to revise the economic terms to include the Replacement Property, (ii) GLPI, or one of its affiliates, will assume the Lumière Loan and Tropicana St. Louis RE’s obligations under the Lumière Loan in consideration of the acquisition of the Replacement Property and our obligations under the Lumière Loan will be deemed to have been satisfied, and (iii) in the event the value of the Replacement Property is greater than the our outstanding obligations under the Lumière Loan, GLPI will pay us the difference between the value of the Replacement Property and the amount of outstanding obligations under the Lumière Loan. If such Replacement Property transaction is not consummated prior to the maturity date of the Lumière Loan, other than as a result of certain failures to perform by GLPI, then the amounts outstanding will be paid in full and the rent under the Master Lease will automatically increase, subject to certain escalations.

Debt Covenant Compliance

As of September 30, 2019, we were in compliance with all of the covenants under the 7% Senior Notes due 2023, 6% Senior Notes due 2025, 6% Senior Notes due 2026, the Credit Facility and the Lumière Loan.

 

28


 

Note 12. Fair Value Measurements

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

 

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

 

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

 

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

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

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

Restricted Cash and Investments and Other Liabilities related to Restricted Investments: The estimated fair values of our restricted cash and investments are based upon quoted prices available in active markets (Level 1), or quoted prices for similar assets in active and inactive markets (Level 2), or quoted prices available in active markets adjusted for time restrictions related to the sale of the investment (Level 3) and represent the amounts we would expect to receive if we sold our restricted cash and investments.

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

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

 

Acquisition‑Related Contingent Considerations: Contingent consideration related to the July 2003 acquisition of Scioto Downs represents the estimate of amounts to be paid to former stockholders of Scioto Downs under certain earn-out provisions. Acquisition related contingent consideration of $0.4 million and $0.5 million is included in accrued other liabilities on the Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018, respectively.

29


 

Items Measured at Fair Value on a Recurring Basis: The following table sets forth the assets measured at fair value on a recurring basis, by input level, in the Consolidated Balance Sheets at September 30, 2019 and December 31, 2018 (amounts in thousands):

 

 

 

September 30, 2019

 

Assets:

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Restricted cash and investments

 

$

 

13,857

 

 

$

 

2,221

 

 

$

 

42,925

 

 

$

 

59,003

 

Marketable securities

 

 

 

12,665

 

 

 

 

7,768

 

 

 

 

 

 

 

 

20,433

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other liabilities related to restricted investments

 

 

 

 

 

 

 

 

 

 

 

7,903

 

 

 

 

7,903

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

Assets:

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Restricted cash and investments

 

$

 

19,481

 

 

$

 

4,467

 

 

$

 

16,008

 

 

$

 

39,956

 

Marketable securities

 

 

 

9,515

 

 

 

 

7,442

 

 

 

 

 

 

 

 

16,957

 

 

The change in restricted cash and investments valued using Level 3 inputs for the nine months ended September 30, 2019 is as follows:

 

 

 

Level 3 Investments

 

 

Level 3 Other Liabilities

 

Fair value of investment and liabilities at December 31, 2018

 

$

 

16,008

 

 

$

 

 

Value of additional investment received

 

 

 

27,329

 

 

 

 

8,774

 

Unrealized loss

 

 

 

(412

)

 

 

 

(871

)

Fair value at September 30, 2019

 

$

 

42,925

 

 

$

 

7,903

 

 

In November 2018, we entered into a 20-year agreement with TSG pursuant to which we agreed to provide TSG with options to obtain access to our second skin for online sports wagering and third skin for real money online gaming and poker, in each case with respect to our properties in the United States. Under the terms of the agreement, we will receive a revenue share from the operation of the applicable verticals by TSG under our licenses. Pursuant to the terms of the TSG agreement, we received 1.1 million TSG common shares, and an additional $5.0 million in TSG common shares became payable to us upon TSG’s exercise of its first option, which shares we expect to receive in the fourth quarter of 2019. We may also receive additional TSG common shares in the future based on TSG net gaming revenue generated in our markets. The initial 1.1 million TSG common shares are subject to a restriction on transfer and may not be sold until November 2019, and the TSG common shares that are payable to us in connection with TSG’s exercise of its first option may not be sold for a period of one year from the date such shares are issued.

At September 30, 2019, the fair value of the Company’s shares of TSG totaled $15.8 million and is included in restricted cash and investments on the Consolidated Balance Sheets. Upon entry into the TSG agreement, the Company also recorded deferred revenue associated with the shares received and recognized revenue of $0.3 million and $1.0 million during the three and nine months ended September 30, 2019, respectively. As of September 30, 2019, the balance of the TSG deferred revenue totaled $17.7 million and is recorded in other long-term liabilities on the Consolidated Balance Sheets. As part of the agreement with William Hill (see Note 7), the Company is obligated to pay William Hill US 50% of the proceeds received from selling the TSG shares. At September 30, 2019, the estimated obligation was $7.9 million and is included in accrued other liabilities on the Consolidated Balance Sheets.

 

There were 0 transfers between Level 1 and Level 2 investments.

30


 

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

 

 

 

September 30, 2019

 

 

December 31, 2018

 

 

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

 

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7% Senior Notes due 2023

 

$

 

369,761

 

 

$

 

392,813

 

 

$

 

368,925

 

 

$

 

385,312

 

6% Senior Notes due 2025

 

 

 

879,479

 

 

 

 

923,125

 

 

 

 

880,086

 

 

 

 

840,000

 

6% Senior Notes due 2026

 

 

 

581,513

 

 

 

 

660,000

 

 

 

 

580,370

 

 

 

 

567,000

 

Term Loan

 

 

 

871,783

 

 

 

 

884,533

 

 

 

 

938,324

 

 

 

 

916,088

 

Revolving Credit Facility

 

 

 

 

 

 

 

 

 

 

 

245,000

 

 

 

 

245,000

 

Lumière Loan

 

 

 

246,000

 

 

 

 

246,000

 

 

 

 

246,000

 

 

 

 

246,000

 

Other long-term debt

 

 

 

2,657

 

 

 

 

2,657

 

 

 

 

3,030

 

 

 

 

3,030

 

 

 

Note 13. Earnings per Share

The following table illustrates the reconciliation of the numerators and denominators of the basic and diluted net income per share computations for the three and nine months ended September 30, 2019 and 2018 (dollars in thousands, except per share amounts):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income available to common stockholders

 

$

 

37,055

 

 

$

 

37,704

 

 

$

 

94,220

 

 

$

 

95,355

 

Shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

 

77,721,353

 

 

 

 

77,522,664

 

 

 

 

77,657,553

 

 

 

 

77,445,611

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

 

103,337

 

 

 

 

93,530

 

 

 

 

105,036

 

 

 

 

125,861

 

RSUs

 

 

 

625,057

 

 

 

 

667,394

 

 

 

 

825,928

 

 

 

 

636,568

 

Weighted average shares outstanding – diluted

 

 

 

78,449,747

 

 

 

 

78,283,588

 

 

 

 

78,588,517

 

 

 

 

78,208,040

 

Net income per common share attributable to

     common stockholders – basic:

 

$

 

0.48

 

 

$

 

0.49

 

 

$

 

1.21

 

 

$

 

1.23

 

Net income per common share attributable to

     common stockholders – diluted:

 

$

 

0.47

 

 

$

 

0.48

 

 

$

 

1.20

 

 

$

 

1.22

 

 

Note 14. Commitments and Contingencies

Litigation.  The Company is a party to various legal and administrative proceedings, which have arisen in the normal course of its 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 the Company’s consolidated financial condition and those estimated losses are not expected to have a material impact on its results of operations. In addition, the Company maintains what it believes 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 the Company’s consolidated financial condition or results of operations. Further, no assurance can be given that the Company’s existing insurance coverage will be sufficient to cover losses, if any, arising from such proceedings.

 

As of November 6, 2019, 8 putative class action lawsuits have been filed in connection with the Merger.  The Company has been named as a party in three of such actions: Stein v. Caesars Entertainment Corp., et al, Civil Action No. 1:19-cv-01656, United States District Court for the District of Delaware (9/5/2019), Romaniuk v. Caesars Entertainment Corp., et al, Civil Action No 1:19-cv-17871, United States District Court for the District of New Jersey (9/11/2019), and Biasi v. Caesars Entertainment Corp., et al, Civil Action No. 1:19-cv-08547, United States District Court for the Southern District of New York (9/13/2019).  In general, the complaints assert claims under sections 14(a), 20(a) and Rule 14a-9 of the Securities Exchange Act of 1934 challenging the adequacy of certain disclosures in the joint proxy statement/prospectus filed in connection with the Merger.  In addition, one of the complaints, in which the Company has not been named a party, alleges state law breach of fiduciary duty claims against the Caesars directors.  The complaints seek, among other relief, an injunction preventing consummation of the Merger, damages in the event that the Merger is consummated and attorneys’ fees.   The Company intends to vigorously defend itself against these claims.

 

31


 

On September 23, 2019, the Company and certain of its officers were named as defendants in a putative class action complaint filed in the United States District Court for the District of New Jersey and captioned as Elberts v. Eldorado Resorts, Inc., Case No. 2:19-cv-18230-SRC-CLW.  The complaint asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated under the Securities Exchange Act of 1934.  The complaint alleges that the Company made material misstatements and/or omissions during the period from March 1, 2019 through September 2, 2019.  The allegations relate to the subpoenas that certain of the Company’s directors and officers received from the SEC, which have been previously disclosed in the proxy statement/prospectus filed by the Company relating to the pending transaction with Caesars. The complaint seeks unspecified damages on behalf of all persons and entities who purchased the Company’s securities during the period from March 1, 2019 through September 2, 2019. The Company intends to vigorously defend itself against these claims.

 

Agreements with Horsemen and Pari-mutuel Clerks.  The Federal Interstate Horse Racing Act and the state racing laws in West Virginia and Ohio require that, in order to simulcast races, we have written agreements with the horse owners and trainers at those racetracks. In addition, in order to operate slot machines in West Virginia, we are required to enter into written agreements regarding the proceeds of the slot machines (a “proceeds agreement”) with a representative of a majority of the horse owners and trainers and with a representative of a majority of the pari‑mutuel clerks. We are required to have a proceeds agreement in effect on July 1 of each year with the horsemen and the pari‑mutuel clerks as a condition to renewal of our video lottery license for such year. If the requisite proceeds agreement is not in place as of July 1 of a particular year, Mountaineer’s application for renewal of its video lottery license could be denied, in which case Mountaineer would not be permitted to operate either its slot machines or table games. In Ohio, we must have an agreement with the representative of the horse owners. We currently have all the requisite agreements in place referenced in this sub section at Mountaineer and Scioto Downs. Certain agreements referenced above may be terminated upon written notice by either party.

Note 15. Related Affiliates

REI

As of September 30, 2019, Recreational Enterprises, Inc. (“REI”) owned approximately 14.4% of outstanding common stock of the Company. The directors of REI are the Company’s Executive Chairman of the Board, Gary L. Carano, its Chief Executive Officer and Board member, Thomas R. Reeg, and its former Senior Vice President of Regional Operations, Gene Carano. In addition, Gary L. Carano also serves as the Vice President of REI and Gene Carano also serves as the Secretary and Treasurer of REI. Members of the Carano family, including Gary L. Carano and Gene Carano, own the equity interests in REI. As such, the Carano family has the ability to significantly influence the affairs of the Company. During the three and nine months ended September 30, 2019 and 2018, there were 0 related party transactions between the Company and the Carano family other than compensation, including salary and equity incentives, and the CSY Lease listed below.

C. S. & Y. Associates

The Company owns the entire parcel on which Eldorado Reno is located, except for approximately 30,000 square feet which is leased from C. S. & Y. Associates which is an entity partially owned by REI (the “CSY Lease”). The CSY Lease expires on June 30, 2057. Rent pursuant to the CSY Lease is $0.6 million annually and paid quarterly during the year. As of September 30, 2019 and December 31, 2018, there were 0 amounts due to or from C.S. & Y. Associates.

32


 

Note 16. Segment Information

The executive decision maker of our Company reviews operating results, assesses performance and makes decisions on a “significant market” basis. Management views each of our casinos as an operating segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, and their management and reporting structure. Prior to the Elgin and Tropicana acquisitions, the Company’s principal operating activities occurred in 4 geographic regions and reportable segments. As referenced in Note 1, following the Elgin and Tropicana acquisitions a fifth segment, Central, was added in the third quarter of 2018. The reportable segments are based on the similar characteristics of the operating segments within the regions in which they operate. See Note 1 for a summary of these segments.  

The following table sets forth, for the periods indicated, certain operating data for our 5 reportable segments.

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(in thousands)

 

Revenues and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Net operating revenues

 

$

 

151,418

 

 

$

 

129,092

 

 

$

 

397,241

 

 

$

 

346,550

 

Depreciation and amortization

 

 

 

13,935

 

 

 

 

9,476

 

 

 

 

40,585

 

 

 

 

27,045

 

      Operating income

 

 

 

35,358

 

 

 

 

31,894

 

 

 

 

66,772

 

 

 

 

63,898

 

Midwest:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Net operating revenues

 

 

 

95,866

 

 

 

 

99,834

 

 

 

 

289,890

 

 

 

 

301,235

 

Depreciation and amortization

 

 

 

4,515

 

 

 

 

8,605

 

 

 

 

20,650

 

 

 

 

24,654

 

      Operating income

 

 

 

30,221

 

 

 

 

26,637

 

 

 

 

87,066

 

 

 

 

80,725

 

South:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Net operating revenues

 

 

 

108,017

 

 

 

 

106,569

 

 

 

 

357,669

 

 

 

 

341,612

 

Depreciation and amortization

 

 

 

9,000

 

 

 

 

9,703

 

 

 

 

29,865

 

 

 

 

26,343

 

      Operating income

 

 

 

15,185

 

 

 

 

16,176

 

 

 

 

61,723

 

 

 

 

50,099

 

East:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Net operating revenues

 

 

 

186,562

 

 

 

 

127,722

 

 

 

 

523,249

 

 

 

 

370,576

 

Depreciation and amortization

 

 

 

11,630

 

 

 

 

4,486

 

 

 

 

36,019

 

 

 

 

15,253

 

      Operating income

 

 

 

45,341

 

 

 

 

23,637

 

 

 

 

107,715

 

 

 

 

67,164

 

Central:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Net operating revenues

 

 

 

119,410

 

 

 

 

23,897

 

 

 

 

362,675

 

 

 

 

23,897

 

Depreciation and amortization

 

 

 

11,626

 

 

 

 

2,215

 

 

 

 

34,317

 

 

 

 

2,215

 

      Operating income

 

 

 

25,793

 

 

 

 

2,868

 

 

 

 

80,896

 

 

 

 

2,868

 

Corporate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Net operating revenues

 

 

 

1,908

 

 

 

 

139

 

 

 

 

5,401

 

 

 

 

377

 

Depreciation and amortization

 

 

 

1,886

 

 

 

 

1,275

 

 

 

 

5,446

 

 

 

 

3,694

 

      Operating expense

 

 

 

(26,991

)

 

 

 

(9,443

)

 

 

 

(53,111

)

 

 

 

(41,377

)

Total Reportable Segments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Net operating revenues

 

$

 

663,181

 

 

$

 

487,253

 

 

$

 

1,936,125

 

 

$

 

1,384,247

 

Depreciation and amortization

 

$

 

52,592

 

 

$

 

35,760

 

 

$

 

166,882

 

 

$

 

99,204

 

      Operating income

 

$

 

124,907

 

 

$

 

91,769

 

 

$

 

351,061

 

 

$

 

223,377

 

Reconciliations to consolidated net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

 

124,907

 

 

$

 

91,769

 

 

$

 

351,061

 

 

$

 

223,377

 

Unallocated income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Interest expense, net

 

 

 

(71,897

)

 

 

 

(34,085

)

 

 

 

(217,205

)

 

 

 

(96,579

)

Loss on early retirement of debt, net

 

 

 

(1,204

)

 

 

 

 

 

 

 

(1,204

)

 

 

 

(162

)

      Unrealized gain on restricted

      investments

 

 

 

3,318

 

 

 

 

 

 

 

 

460

 

 

 

 

 

Provision for income taxes

 

 

 

(18,069

)

 

 

 

(19,980

)

 

 

 

(38,892

)

 

 

 

(31,281

)

Net income

 

$

 

37,055

 

 

$

 

37,704

 

 

$

 

94,220

 

 

$

 

95,355

 

33


 

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

 

(in thousands)

 

Capital Expenditures, Net

 

 

 

 

 

 

 

 

 

 

West

 

$

 

67,787

 

 

$

 

49,060

 

Midwest

 

 

 

11,175

 

 

 

 

14,516

 

South

 

 

 

15,035

 

 

 

 

12,307

 

East

 

 

 

28,280

 

 

 

 

8,953

 

Central

 

 

 

8,521

 

 

 

 

237

 

Corporate

 

 

 

4,218

 

 

 

 

4,009

 

Total

 

$

 

135,016

 

 

$

 

89,082

 

 

 

 

West

 

 

Midwest

 

 

South

 

 

East

 

 

Central

 

 

Corporate,

Other &

Eliminations

 

 

Total

 

Balance sheet as of September 30, 2019

(in thousands)

 

Total assets

 

$

 

1,862,752

 

 

$

 

1,327,369

 

 

$

 

1,161,263

 

 

$

 

2,006,147

 

 

$

 

1,540,086

 

 

$

 

(1,816,376

)

 

$

 

6,081,241

 

Goodwill

 

 

 

220,934

 

 

 

 

246,056

 

 

 

 

204,791

 

 

 

 

162,816

 

 

 

 

75,120

 

 

 

 

 

 

 

 

909,717

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance sheet as of December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

 

1,710,375

 

 

$

 

1,245,521

 

 

$

 

1,068,258

 

 

$

 

2,166,730

 

 

$

 

1,457,961

 

 

$

 

(1,737,383

)

 

$

 

5,911,462

 

Goodwill

 

 

 

220,861

 

 

 

 

322,745

 

 

 

 

213,150

 

 

 

 

177,486

 

 

 

 

74,074

 

 

 

 

 

 

 

 

1,008,316

 

 

 

Note 17. Consolidating Condensed Financial Information

Certain of our wholly-owned subsidiaries have fully and unconditionally guaranteed on a joint and several basis, the payment of all obligations under our 7% Senior Notes due 2023, 6% Senior Notes due 2025, 6% Senior Notes due 2026 and Credit Facility.

As of September 30, 2019, following wholly-owned subsidiaries of the Company are guarantors, on a joint and several basis, under the 7% Senior Notes due 2023, 6% Senior Notes due 2025, 6% Senior Notes due 2026 and Credit Facility: Isle of Capri Casinos LLC; Eldorado Holdco LLC; Eldorado Resorts LLC; Eldorado Shreveport #1, LLC; Eldorado Shreveport #2, LLC; Eldorado Casino Shreveport Joint Venture; MTR Gaming Group, Inc.; Mountaineer Park, Inc.; Old PID, Inc. (f/k/a Presque Isle Downs, Inc.); Scioto Downs, Inc.; Eldorado Limited Liability Company; Circus and Eldorado Joint Venture, LLC; CC-Reno, LLC; CCR Newco, LLC; Black Hawk Holdings, L.L.C.; IC Holdings Colorado, Inc.; CCSC/Blackhawk, Inc.; Isle of Capri Black Hawk, L.L.C.; IOC-Black Hawk Distribution Company, LLC; IOC-Black Hawk County, Inc.; Isle of Capri Bettendorf, L.C.; PPI, Inc.; Pompano Park Holdings, L.L.C.; IOC-Lula, Inc.; IOC-Kansas City, Inc.; IOC-Boonville, Inc.; IOC-Caruthersville, LLC; IOC Cape Girardeau, LLC; IOC-Vicksburg, Inc.; IOC-Vicksburg, L.L.C.; Rainbow Casino-Vicksburg Partnership, L.P.; IOC Holdings L.L.C.; St. Charles Gaming Company, L.L.C; Elgin Riverboat Resort–Riverboat Casino; Elgin Holdings I LLC; Elgin Holdings II LLC, PPI Development Holdings LLC; PPI Development LLC; Tropicana Entertainment, Inc.; New Tropicana Holdings, Inc.; New Tropicana OpCo, Inc.; TLH LLC; TropWorld Games LLC; TEI R7 Investment LLC; TEI Management Services LLC; Tropicana St. Louis LLC; TEI (ST. LOUIS RE), LLC; TEI (STLH), LLC; TEI (ES), LLC; Aztar Riverboat Holding Company, LLC; Aztar Indiana Gaming Company, LLC ; New Jazz Enterprises, LLC; Catfish Queen Partnership in Commendam; Centroplex Centre Convention Hotel, L.L.C.; Columbia Properties Tahoe, LLC; MB Development, LLC; Lighthouse Point, LLC; Tropicana Atlantic City Corp.; Tropicana St. Louis RE LLC, Tropicana Laughlin, LLC, ELDO FIT, LLC and CRS ANNEX, LLC. Each of the subsidiaries’ guarantees is joint and several with the guarantees of the other subsidiaries.   

 

34


 

The consolidating condensed balance sheet as of September 30, 2019 is as follows:

 

Balance Sheet

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands)

 

Current assets

 

$

 

78,612

 

 

$

 

864,016

 

 

$

 

20,911

 

 

$

 

 

 

$

 

963,539

 

Intercompany receivables

 

 

 

 

 

 

 

438,466

 

 

 

 

32,402

 

 

 

 

(470,868

)

 

 

 

 

Investment in and advances to

   unconsolidated affiliates

 

 

 

127,480

 

 

 

 

2,316

 

 

 

 

 

 

 

 

 

 

 

 

129,796

 

Investments in subsidiaries

 

 

 

3,847,795

 

 

 

 

 

 

 

 

 

 

 

 

(3,847,795

)

 

 

 

 

Property and equipment, net

 

 

 

17,544

 

 

 

 

2,616,883

 

 

 

 

684

 

 

 

 

 

 

 

 

2,635,111

 

Other assets

 

 

 

72,945

 

 

 

 

2,299,720

 

 

 

 

15,868

 

 

 

 

(35,738

)

 

 

 

2,352,795

 

Total assets

 

$

 

4,144,376

 

 

$

 

6,221,401

 

 

$

 

69,865

 

 

$

 

(4,354,401

)

 

$

 

6,081,241

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

 

75,851

 

 

$

 

321,286

 

 

$

 

17,834

 

 

$

 

 

 

$

 

414,971

 

Intercompany payables

 

 

 

445,868

 

 

 

 

 

 

 

 

25,000

 

 

 

 

(470,868

)

 

 

 

 

Long-term financing obligation to GLPI

 

 

 

 

 

 

 

967,982

 

 

 

 

 

 

 

 

 

 

 

 

967,982

 

Long-term debt, less current maturities

 

 

 

2,329,800

 

 

 

 

621,155

 

 

 

 

 

 

 

 

 

 

 

 

2,950,955

 

Deferred income tax liabilities

 

 

 

 

 

 

 

260,449

 

 

 

 

166

 

 

 

 

(35,738

)

 

 

 

224,877

 

Other liabilities

 

 

 

166,080

 

 

 

 

229,598

 

 

 

 

 

 

 

 

 

 

 

 

395,678

 

Stockholders’ equity

 

 

 

1,126,777

 

 

 

 

3,820,931

 

 

 

 

26,865

 

 

 

 

(3,847,795

)

 

 

 

1,126,778

 

Total liabilities and stockholders’

   equity

 

$

 

4,144,376

 

 

$

 

6,221,401

 

 

$

 

69,865

 

 

$

 

(4,354,401

)

 

$

 

6,081,241

 

 

The consolidating condensed balance sheet as of December 31, 2018 is as follows:

 

Balance Sheet

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands)

 

Current assets

 

$

 

48,268

 

 

$

 

497,309

 

 

$

 

27,619

 

 

$

 

 

 

$

 

573,196

 

Intercompany receivables

 

 

 

 

 

 

 

7,831

 

 

 

 

28,042

 

 

 

 

(35,873

)

 

 

 

 

Investment in and advances to

   unconsolidated affiliates

 

 

 

 

 

 

 

1,892

 

 

 

 

 

 

 

 

 

 

 

 

1,892

 

Investments in subsidiaries

 

 

 

3,648,961

 

 

 

 

 

 

 

 

 

 

 

 

(3,648,961

)

 

 

 

 

Property and equipment, net

 

 

 

18,555

 

 

 

 

2,863,311

 

 

 

 

740

 

 

 

 

 

 

 

 

2,882,606

 

Other assets

 

 

 

35,072

 

 

 

 

2,423,807

 

 

 

 

26,674

 

 

 

 

(31,785

)

 

 

 

2,453,768

 

Total assets

 

$

 

3,750,856

 

 

$

 

5,794,150

 

 

$

 

83,075

 

 

$

 

(3,716,619

)

 

$

 

5,911,462

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

 

48,579

 

 

$

 

328,319

 

 

$

 

25,279

 

 

$

 

 

 

$

 

402,177

 

Intercompany payables

 

 

 

10,873

 

 

 

 

 

 

 

 

25,000

 

 

 

 

(35,873

)

 

 

 

 

Long-term financing obligation to GLPI

 

 

 

 

 

 

 

959,835

 

 

 

 

 

 

 

 

 

 

 

 

959,835

 

Long-term debt, less current maturities

 

 

 

2,640,046

 

 

 

 

621,193

 

 

 

 

34

 

 

 

 

 

 

 

 

3,261,273

 

Deferred income tax liabilities

 

 

 

 

 

 

 

231,795

 

 

 

 

 

 

 

 

(31,785

)

 

 

 

200,010

 

Other liabilities

 

 

 

22,206

 

 

 

 

36,808

 

 

 

 

 

 

 

 

 

 

 

 

59,014

 

Stockholders’ equity

 

 

 

1,029,152

 

 

 

 

3,616,200

 

 

 

 

32,762

 

 

 

 

(3,648,961

)

 

 

 

1,029,153

 

Total liabilities and stockholders’

   equity

 

$

 

3,750,856

 

 

$

 

5,794,150

 

 

$

 

83,075

 

 

$

 

(3,716,619

)

 

$

 

5,911,462

 

 

 

35


 

The consolidating condensed statement of operations for the three months ended September 30, 2019 is as follows:

 

 

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

$

 

 

 

 

 

457,852

 

 

$

 

148

 

 

$

 

 

 

$

 

458,000

 

Non-gaming

 

 

 

1,785

 

 

 

 

202,018

 

 

 

 

1,378

 

 

 

 

 

 

 

 

205,181

 

Net revenues

 

 

 

1,785

 

 

 

 

659,870

 

 

 

 

1,526

 

 

 

 

 

 

 

 

663,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

 

 

 

 

 

 

202,555

 

 

 

 

 

 

 

 

 

 

 

 

202,555

 

Non-gaming

 

 

 

 

 

 

 

99,813

 

 

 

 

 

 

 

 

 

 

 

 

99,813

 

Marketing and promotions

 

 

 

 

 

 

 

33,291

 

 

 

 

1

 

 

 

 

 

 

 

 

33,292

 

General and administrative

 

 

 

 

 

 

 

122,802

 

 

 

 

(35

)

 

 

 

 

 

 

 

122,767

 

Corporate

 

 

 

13,490

 

 

 

 

(541

)

 

 

 

65

 

 

 

 

 

 

 

 

13,014

 

Management fee

 

 

 

(6,401

)

 

 

 

6,401

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

1,311

 

 

 

 

51,225

 

 

 

 

56

 

 

 

 

 

 

 

 

52,592

 

Total operating expenses

 

 

 

8,400

 

 

 

 

515,546

 

 

 

 

87

 

 

 

 

 

 

 

 

524,033

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on sale or disposal of

   property and equipment

 

 

 

 

 

 

 

(284

)

 

 

 

 

 

 

 

 

 

 

 

(284

)

Transaction expenses

 

 

 

(12,442

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,442

)

(Loss) income from unconsolidated

   affiliates

 

 

 

(1,552

)

 

 

 

37

 

 

 

 

 

 

 

 

 

 

 

 

(1,515

)

Operating (loss) income

 

 

 

(20,609

)

 

 

 

144,077

 

 

 

 

1,439

 

 

 

 

 

 

 

 

124,907

 

Other Expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

(35,600

)

 

 

 

(35,948

)

 

 

 

(349

)

 

 

 

 

 

 

 

(71,897

)

Loss on early retirement of debt, net

 

 

 

(1,204

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,204

)

Unrealized gain on restricted investments

 

 

 

3,318

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,318

 

Subsidiary income (loss)

 

 

 

71,256

 

 

 

 

 

 

 

 

 

 

 

 

(71,256

)

 

 

 

 

Income (loss) before income

   taxes

 

 

 

17,161

 

 

 

 

108,129

 

 

 

 

1,090

 

 

 

 

(71,256

)

 

 

 

55,124

 

Income tax benefit (provision)

 

 

 

19,894

 

 

 

 

(37,633

)

 

 

 

(330

)

 

 

 

 

 

 

 

(18,069

)

Net income (loss)

 

$

 

37,055

 

 

$

 

70,496

 

 

$

 

760

 

 

$

 

(71,256

)

 

$

 

37,055

 

 

36


 

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

 

 

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

$

 

 

 

$

 

359,897

 

 

$

 

8,272

 

 

$

 

 

 

$

 

368,169

 

Non-gaming

 

 

 

10

 

 

 

 

116,639

 

 

 

 

2,435

 

 

 

 

 

 

 

 

119,084

 

Net revenues

 

 

 

10

 

 

 

 

476,536

 

 

 

 

10,707

 

 

 

 

 

 

 

 

487,253

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

 

 

 

 

 

 

174,602

 

 

 

 

5,460

 

 

 

 

 

 

 

 

180,062

 

Non-gaming

 

 

 

 

 

 

 

68,046

 

 

 

 

627

 

 

 

 

 

 

 

 

68,673

 

Marketing and promotions

 

 

 

 

 

 

 

22,687

 

 

 

 

435

 

 

 

 

 

 

 

 

23,122

 

General and administrative

 

 

 

 

 

 

 

73,755

 

 

 

 

1,844

 

 

 

 

 

 

 

 

75,599

 

Corporate

 

 

 

8,596

 

 

 

 

94

 

 

 

 

527

 

 

 

 

 

 

 

 

9,217

 

Impairment charges

 

 

 

 

 

 

 

 

 

 

 

3,787

 

 

 

 

 

 

 

 

3,787

 

Management fee

 

 

 

(7,067

)

 

 

 

7,067

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

923

 

 

 

 

34,782

 

 

 

 

55

 

 

 

 

 

 

 

 

35,760

 

Total operating expenses

 

 

 

2,452

 

 

 

 

381,033

 

 

 

 

12,735

 

 

 

 

 

 

 

 

396,220

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on sale of asset or disposal of

   property and equipment

 

 

 

 

 

 

 

(101

)

 

 

 

(9

)

 

 

 

 

 

 

 

(110

)

Proceeds from terminated sale

 

 

 

5,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,000

 

Transaction expenses

 

 

 

(4,090

)

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(4,091

)

Equity in loss of unconsolidated

   affiliate

 

 

 

 

 

 

 

(63

)

 

 

 

 

 

 

 

 

 

 

 

(63

)

Operating (loss) income

 

 

 

(1,532

)

 

 

 

95,338

 

 

 

 

(2,037

)

 

 

 

 

 

 

 

91,769

 

Other Expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

(27,582

)

 

 

 

(6,088

)

 

 

 

(415

)

 

 

 

 

 

 

 

(34,085

)

Subsidiary income (loss)

 

 

 

61,964

 

 

 

 

 

 

 

 

 

 

 

 

(61,964

)

 

 

 

 

Income (loss) before income

   taxes

 

 

 

32,850

 

 

 

 

89,250

 

 

 

 

(2,452

)

 

 

 

(61,964

)

 

 

 

57,684

 

Income tax benefit (provision)

 

 

 

4,854

 

 

 

 

(25,778

)

 

 

 

944

 

 

 

 

 

 

 

 

(19,980

)

Net income (loss)

 

$

 

37,704

 

 

$

 

63,472

 

 

$

 

(1,508

)

 

$

 

(61,964

)

 

$

 

37,704

 

 

37


 

The consolidating condensed statement of operations for the nine months ended September 30, 2019 is as follows:

 

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

$

 

 

 

$

 

1,381,231

 

 

$

 

4,617

 

 

$

 

 

 

$

 

1,385,848

 

Non-gaming

 

 

 

4,966

 

 

 

 

540,394

 

 

 

 

4,917

 

 

 

 

 

 

 

 

550,277

 

Net revenues

 

 

 

4,966

 

 

 

 

1,921,625

 

 

 

 

9,534

 

 

 

 

 

 

 

 

1,936,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

 

 

 

 

 

 

612,937

 

 

 

 

3,164

 

 

 

 

 

 

 

 

616,101

 

Non-gaming

 

 

 

 

 

 

 

290,053

 

 

 

 

400

 

 

 

 

 

 

 

 

290,453

 

Marketing and promotions

 

 

 

 

 

 

 

97,422

 

 

 

 

251

 

 

 

 

 

 

 

 

97,673

 

General and administrative

 

 

 

 

 

 

 

358,884

 

 

 

 

1,202

 

 

 

 

 

 

 

 

360,086

 

Corporate

 

 

 

50,352

 

 

 

 

166

 

 

 

 

301

 

 

 

 

 

 

 

 

50,819

 

Impairment charges

 

 

 

 

 

 

 

958

 

 

 

 

 

 

 

 

 

 

 

 

958

 

Management fee

 

 

 

(16,956

)

 

 

 

16,956

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

3,701

 

 

 

 

163,125

 

 

 

 

56

 

 

 

 

 

 

 

 

166,882

 

Total operating expenses

 

 

 

37,097

 

 

 

 

1,540,501

 

 

 

 

5,374

 

 

 

 

 

 

 

 

1,582,972

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale or disposal of

   property and equipment

 

 

 

409

 

 

 

 

21,193

 

 

 

 

66

 

 

 

 

 

 

 

 

21,668

 

Transaction expenses

 

 

 

(20,470

)

 

 

 

(913

)

 

 

 

(245

)

 

 

 

 

 

 

 

(21,628

)

(Loss) income from unconsolidated

   affiliates

 

 

 

(2,281

)

 

 

 

149

 

 

 

 

 

 

 

 

 

 

 

 

(2,132

)

Operating (loss) income

 

 

 

(54,473

)

 

 

 

401,553

 

 

 

 

3,981

 

 

 

 

 

 

 

 

351,061

 

Other Expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

��

 

 

 

 

 

 

 

Interest expense, net

 

 

 

(108,617

)

 

 

 

(107,507

)

 

 

 

(1,081

)

 

 

 

 

 

 

 

(217,205

)

Loss on early retirement of debt, net

 

 

 

(1,204

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,204

)

Unrealized gain on restricted investments

 

 

 

460

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

460

 

Subsidiary income (loss)

 

 

 

203,531

 

 

 

 

 

 

 

 

 

 

 

 

(203,531

)

 

 

 

 

Income (loss) before income

   taxes

 

 

 

39,697

 

 

 

 

294,046

 

 

 

 

2,900

 

 

 

 

(203,531

)

 

 

 

133,112

 

Income tax benefit (provision)

 

 

 

54,523

 

 

 

 

(92,515

)

 

 

 

(900

)

 

 

 

 

 

 

 

(38,892

)

Net income (loss)

 

$

 

94,220

 

 

$

 

201,531

 

 

$

 

2,000

 

 

$

 

(203,531

)

 

$

 

94,220

 

 

38


 

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

 

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

$

 

 

 

$

 

1,036,650

 

 

$

 

23,767

 

 

$

 

 

 

$

 

1,060,417

 

Non-gaming

 

 

 

10

 

 

 

 

316,216

 

 

 

 

7,604

 

 

 

 

 

 

 

 

323,830

 

Net revenues

 

 

 

10

 

 

 

 

1,352,866

 

 

 

 

31,371

 

 

 

 

 

 

 

 

1,384,247

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

 

 

 

 

 

 

503,741

 

 

 

 

15,817

 

 

 

 

 

 

 

 

519,558

 

Non-gaming

 

 

 

 

 

 

 

198,113

 

 

 

 

2,022

 

 

 

 

 

 

 

 

200,135

 

Marketing and promotions

 

 

 

 

 

 

 

64,943

 

 

 

 

1,312

 

 

 

 

 

 

 

 

66,255

 

General and administrative

 

 

 

 

 

 

 

218,054

 

 

 

 

5,492

 

 

 

 

 

 

 

 

223,546

 

Corporate

 

 

 

30,148

 

 

 

 

751

 

 

 

 

2,119

 

 

 

 

 

 

 

 

33,018

 

Impairment charges

 

 

 

 

 

 

 

9,815

 

 

 

 

3,787

 

 

 

 

 

 

 

 

13,602

 

Management fee

 

 

 

(19,234

)

 

 

 

19,234

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

2,646

 

 

 

 

96,180

 

 

 

 

378

 

 

 

 

 

 

 

 

99,204

 

Total operating expenses

 

 

 

13,560

 

 

 

 

1,110,831

 

 

 

 

30,927

 

 

 

 

 

 

 

 

1,155,318

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on sale of asset or disposal of

   property and equipment

 

 

 

 

 

 

 

(386

)

 

 

 

(7

)

 

 

 

 

 

 

 

(393

)

Proceeds from terminated sale

 

 

 

5,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,000

 

Transaction expenses

 

 

 

(9,543

)

 

 

 

(500

)

 

 

 

 

 

 

 

 

 

 

 

(10,043

)

Equity in loss of unconsolidated

   affiliate

 

 

 

 

 

 

 

(116

)

 

 

 

 

 

 

 

 

 

 

 

(116

)

Operating (loss) income

 

 

 

(18,093

)

 

 

 

241,033

 

 

 

 

437

 

 

 

 

 

 

 

 

223,377

 

Other Expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

(76,927

)

 

 

 

(18,293

)

 

 

 

(1,359

)

 

 

 

 

 

 

 

(96,579

)

Loss on early retirement of debt, net

 

 

 

(162

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(162

)

Subsidiary income (loss)

 

 

 

166,040

 

 

 

 

 

 

 

 

 

 

 

 

(166,040

)

 

 

 

 

Income (loss) before income

   taxes

 

 

 

70,858

 

 

 

 

222,740

 

 

 

 

(922

)

 

 

 

(166,040

)

 

 

 

126,636

 

Income tax benefit (provision)

 

 

 

24,497

 

 

 

 

(56,519

)

 

 

 

741

 

 

 

 

 

 

 

 

(31,281

)

Net income (loss)

 

$

 

95,355

 

 

$

 

166,221

 

 

$

 

(181

)

 

$

 

(166,040

)

 

$

 

95,355

 

 

39


 

The consolidating condensed statement of cash flows for the nine months ended September 30, 2019 is as follows:

 

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands)

 

Net cash (used in) provided by

   operating activities

 

$

 

(83,572

)

 

$

 

342,979

 

 

$

 

676

 

 

$

 

 

 

$

 

260,083

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment, net

 

 

 

(3,510

)

 

 

 

(131,506

)

 

 

 

 

 

 

 

 

 

 

 

(135,016

)

Sale of restricted investments

 

 

 

 

 

 

 

 

 

 

 

4,962

 

 

 

 

 

 

 

 

4,962

 

Proceeds from sale of property and

   equipment, net of cash sold

 

 

 

33

 

 

 

 

171,398

 

 

 

 

(2,070

)

 

 

 

 

 

 

 

169,361

 

Investments in and loans to unconsolidated

   affiliates

 

 

 

(815

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(815

)

Net cash (used in) provided by

   investing activities

 

 

 

(4,292

)

 

 

 

39,892

 

 

 

 

2,892

 

 

 

 

 

 

 

 

38,492

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net proceeds from (payments to) related

   parties

 

 

 

434,993

 

 

 

 

(430,633

)

 

 

 

(4,360

)

 

 

 

 

 

 

 

 

Payments on Term Loan

 

 

 

(70,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(70,000

)

Net payments under Revolving Credit Facility

 

 

 

(245,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(245,000

)

Debt issuance costs

 

 

 

(458

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(458

)

Taxes paid related to net share settlement

   of equity awards

 

 

 

(7,574

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,574

)

Dividends received (paid)

 

 

 

 

 

 

 

7,900

 

 

 

 

(7,900

)

 

 

 

 

 

 

 

 

Payments on other long-term payables

 

 

 

(72

)

 

 

 

(36

)

 

 

 

(264

)

 

 

 

 

 

 

 

 

(372

)

Net cash provided by (used in)

   financing activities

 

 

 

111,889

 

 

 

 

(422,769

)

 

 

 

(12,524

)

 

 

 

 

 

 

 

(323,404

)

Increase (decrease) in cash, cash equivalents

   and restricted cash

 

 

 

24,025

 

 

 

 

(39,898

)

 

 

 

(8,956

)

 

 

 

 

 

 

 

(24,829

)

Cash, cash equivalents and restricted

   cash, beginning of period

 

 

 

12,844

 

 

 

 

222,672

 

 

 

 

11,175

 

 

 

 

 

 

 

 

246,691

 

Cash, cash equivalents and restricted

   cash, end of period

 

$

 

36,869

 

 

$

 

182,774

 

 

$

 

2,219

 

 

$

 

 

 

$

 

221,862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

   CONSOLIDATED BALANCE SHEETS:

 

Cash and cash equivalents

 

$

 

36,869

 

 

 

 

169,819

 

 

 

 

2,143

 

 

$

 

 

 

$

 

208,831

 

Restricted cash

 

 

 

 

 

 

 

6,361

 

 

 

 

76

 

 

 

 

 

 

 

 

6,437

 

Restricted and escrow cash included in other

   noncurrent assets

 

 

 

 

 

 

 

6,594

 

 

 

 

 

 

 

 

 

 

 

 

6,594

 

Total cash, cash equivalents and restricted

   cash

 

$

 

36,869

 

 

$

 

182,774

 

 

$

 

2,219

 

 

$

 

 

 

$

 

221,862

 

 

40


 

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

 

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands)

 

Net cash (used in) provided by

   operating activities

 

$

 

(22,743

)

 

$

 

283,410

 

 

$

 

2,781

 

 

$

 

 

 

$

 

263,448

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment, net

 

 

 

(2,620

)

 

 

 

(86,405

)

 

 

 

(57

)

 

 

 

 

 

 

 

(89,082

)

Proceeds from sale of property and

   equipment

 

 

 

 

 

 

 

920

 

 

 

 

 

 

 

 

 

 

 

 

920

 

Net cash (used in) provided by business

   combinations

 

 

 

(328,925

)

 

 

 

22,651

 

 

 

 

 

 

 

 

 

 

 

 

(306,274

)

Investment in and loans to unconsolidated

   affiliates

 

 

 

 

 

 

 

(698

)

 

 

 

 

 

 

 

 

 

 

 

(698

)

Net cash used in investing activities

 

 

 

(331,545

)

 

 

 

(63,532

)

 

 

 

(57

)

 

 

 

 

 

 

 

(395,134

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net proceeds from (payments to) related

   parties

 

 

 

208,772

 

 

 

 

(214,023

)

 

 

 

5,251

 

 

 

 

 

 

 

 

 

Proceeds from issuance of New Term Loan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of 6% Senior Notes

   due 2026

 

 

 

 

 

 

 

 

 

 

 

600,000

 

 

 

 

 

 

 

 

600,000

 

Net borrowings under Revolving Credit

   Facility

 

 

 

180,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

180,000

 

Debt issuance costs

 

 

 

(5,401

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,401

)

Taxes paid related to net share settlement

   of equity awards

 

 

 

(10,601

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,601

)

Proceeds from exercise of stock options

 

 

 

154

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

154

 

Payments on other long-term payables

 

 

 

(67

)

 

 

 

(217

)

 

 

 

(217

)

 

 

 

 

 

 

 

(501

)

Net cash provided by (used in)

   financing activities

 

 

 

372,857

 

 

 

 

(214,240

)

 

 

 

605,034

 

 

 

 

 

 

 

 

763,651

 

Increase in cash, cash equivalents and

   restricted cash

 

 

 

18,569

 

 

 

 

5,638

 

 

 

 

607,758

 

 

 

 

 

 

 

 

631,965

 

Cash, cash equivalents and restricted

   cash, beginning of period

 

 

 

13,837

 

 

 

 

118,483

 

 

 

 

15,429

 

 

 

 

 

 

 

 

147,749

 

Cash, cash equivalents and restricted

   cash, end of period

 

$

 

32,406

 

 

$

 

124,121

 

 

$

 

623,187

 

 

$

 

 

 

$

 

779,714

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

  CONSOLIDATED BALANCE SHEETS:

 

Cash and cash equivalents

 

$

 

31,688

 

 

$

 

122,451

 

 

$

 

9,947

 

 

$

 

 

 

$

 

164,086

 

Restricted cash

 

 

 

718

 

 

 

 

670

 

 

 

 

234

 

 

 

 

 

 

 

 

1,622

 

Restricted and escrow cash included in other

   noncurrent assets

 

 

 

 

 

 

 

1,000

 

 

 

 

613,006

 

 

 

 

 

 

 

 

614,006

 

Total cash, cash equivalents and restricted

   cash

 

$

 

32,406

 

 

$

 

124,121

 

 

$

 

623,187

 

 

$

 

 

 

$

 

779,714

 

 

Note 18. Pending Acquisitions

 

Caesars Entertainment Corporation

 

On June 24, 2019, the Company entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 to Agreement and Plan of Merger, dated as of August 15, 2019, and as it may be further amended from time to time, the “Merger Agreement”) with Caesars Entertainment Corporation (“Caesars”) pursuant to which a wholly-owned subsidiary of the Company will merge with and into Caesars, with Caesars surviving as a wholly-owned subsidiary of the Company (the “Merger”). Based on the terms and subject to the conditions set forth in the Merger Agreement, the aggregate consideration payable by the Company in respect of outstanding shares of common stock of Caesars will be (a) an amount of cash equal to (i) the sum of (A) $8.40 plus (B) if applicable closing conditions set forth in the Merger Agreement are not satisfied by March 25, 2020, an amount equal to $0.003333 for each day (provided that such amount will not be payable if the waiting period under the HSR Act has expired or been terminated but (to the extent required) the consents of the holders of Caesars’ 5.00% convertible senior notes due 2024 have not been obtained) from March 25, 2020 until the closing date of the Merger, multiplied by (ii) a number of shares of Caesars common stock equal to (A) 682,161,838 (which includes 8,271,660 shares being held in escrow trust to satisfy unsecured claims pursuant to the Third Amended Joint Plan of Reorganization, filed with the U.S. Bankruptcy Court for the Northern District of Illinois in Chicago on January 13, 2017, at Docket No. 6318, which

41


 

shares are not entitled to vote) plus (B) the number of shares of Caesars common stock (the “Aggregate Caesars Share Amount”) issued after June 24, 2019 and prior to the effective time of the Merger pursuant to the exercise of certain equity awards issued under Caesars stock plans or conversion of Caesars’ outstanding convertible notes and (b) a number of shares of common stock of Eldorado equal to 0.0899 multiplied by the Aggregate Caesars Share Amount (such amount per share of Caesars common stock, the “Merger Consideration”).  Following the consummation of the Merger (assuming that all Caesars convertible notes are converted immediately following consummation of the Merger into $8.40 in cash and 0.0899 shares of common stock of Eldorado for each share of Caesars common stock into which such Caesars convertible notes were convertible immediately prior to the Merger), Eldorado and former Caesars stockholders will hold approximately 51% and 49%, respectively, of the combined company's outstanding shares of common stock.

 

The Merger Agreement contains customary representations and warranties by each of Caesars and Eldorado, and each party has agreed to customary covenants.

 

The Merger Agreement also contains termination rights for each of Caesars and Eldorado under certain circumstances. If the Merger Agreement is terminated in certain circumstances relating to changes in the recommendation of the board of directors of Caesars in favor of the Merger, entry by Caesars into an alternative transaction or in certain circumstances following the failure of Caesars stockholders to approve the Merger, Caesars will be required to pay Eldorado a termination fee of approximately $418.4 million. If the Merger Agreement is terminated in certain circumstances relating to changes in the recommendation of the board of directors of Eldorado in favor of the issuance of shares of Eldorado common stock in the Merger or in certain circumstances following the failure of Eldorado stockholders to approve such issuance, then Eldorado will be required to pay Caesars a termination fee of approximately $154.9 million. In addition, each party will be obligated to reimburse the other party’s expenses for an amount not to exceed $50.0 million if the Merger Agreement is terminated because of the failure to obtain the required approval of such party’s stockholders (creditable against any termination fee that may subsequently be paid by such party). The Merger Agreement also provides that Eldorado will be obligated to pay a termination fee of approximately $836.8 million to Caesars if the Merger Agreement is terminated (i) due to a law or order relating to gaming or antitrust laws that prohibits or permanently enjoins the consummation of the transactions, (ii) because the required regulatory approvals were not obtained prior to June 24, 2020 (subject to extension to a date no later than December 24, 2020 pursuant to the Merger Agreement) or (iii) due to Eldorado willfully and materially breaching certain obligations with respect to the actions required to be taken by Eldorado to obtain required antitrust approvals.

 

Consummation of the Merger is subject to the satisfaction or waiver of certain conditions, including, among others, (1) the expiration or termination of any applicable waiting period under the HSR Act, and receipt of required gaming approvals, (2) the absence of any governmental order or law prohibiting the consummation of the Merger, (3) adoption of the Merger Agreement by holders of a majority of the outstanding shares of Caesars common stock, (4) the approval of the issuance of shares of Eldorado common stock in the Merger, (5) the effectiveness of the registration statement for Eldorado common stock to be issued in the Merger and the authorization for listing of those shares on the Nasdaq Stock Market, (6) absence of a material adverse effect on the other party, (7) the accuracy of the other party’s representations and warranties, subject to customary materiality standards, (8) compliance of the other party with its respective covenants under the Merger Agreement in all material respects and (9) conversion or certain amendments of, or another mutually agreed arrangement with respect to, Caesars’ 5.00% convertible senior notes due 2024.

 

In connection with the execution of the Merger Agreement, on June 24, 2019, the Company entered into a debt financing commitment letter and related fee letters with JPMorgan Chase Bank, N.A., Credit Suisse AG, Cayman Islands Branch, Credit Suisse Loan Funding LLC, Macquarie Capital (USA) Inc. and Macquarie Capital Funding LLC (the “Initial Commitment Parties”). On July 19, 2019, the Company entered into an amended and restated commitment letter (the “A&R Commitment Letter”) and related fee letters, which amended and restated the Commitment Letter in its entirety to, among other things, add additional arrangers and lenders, including Bank of America, N.A., BofA Securities, Inc., Deutsche Bank Securities Inc., Deutsche Bank AG New York Branch, Deutsche Bank AG Cayman Islands Branch, Goldman Sachs Bank USA, SunTrust Bank, SunTrust Robinson Humphrey, Inc., U.S. Bank National Association, KeyBank National Association, KeyBanc Capital Markets Inc., Fifth Third Bank, and Citizens Bank, National Association (together with the Initial Commitment Parties, collectively, the “Commitment Parties”). Pursuant to the A&R Commitment Letter, the Commitment Parties committed to arrange and provide (i) the Company with: (w) a $1,000.0 million senior secured revolving credit facility, (x) a $3,000.0 million senior secured term loan B facility, (y) a $3,600.0 million senior secured 364-day bridge facility and (z) a $1,800.0 million senior unsecured bridge loan facility and (ii) a subsidiary of Caesars with a $2,400.0 million senior secured incremental term loan B facility (collectively, the “Debt Financing”). The proceeds of the Debt Financing will be used (a) to pay all or a portion of the cash consideration payable in the Merger, (b) to refinance all of the Company’s existing syndicated bank credit facilities and outstanding senior notes, (c) to refinance certain of Caesars’ and its subsidiaries’ existing debt, (d) to pay transaction fees and expenses related to the Merger and related transactions and (e) for working capital and general corporate purposes. The availability of the borrowings under the Debt Financing is subject to the satisfaction of certain customary conditions including the substantially concurrent closing of the Merger.

42


 

 

On July 19, 2019, the Company entered into a commitment and engagement letter (as amended, the “Increase Commitment Letter”) and related fee letters to, if elected by the Company, increase the total size of the Debt Financing, including an increase to the senior secured term loan B facility to be arranged on a commercially reasonable efforts basis by the Commitment Parties in an amount to be agreed upon by the parties and an increase to the revolving credit facility by $830.0 million, the proceeds of which, if the Company elects to incur such financing, may be used to refinance certain existing indebtedness of Caesars Resort Collection, LLC and its subsidiaries and for working capital and general corporate purposes upon consummation of the Merger. The Increase Commitment Letter and a related engagement letter also contemplate the possibility of new senior secured and/or senior unsecured notes to be issued by the Company.

 

In connection with the execution of the Merger Agreement, on June 24, 2019, the Company entered into a Master Transaction Agreement (the “MTA”) with VICI Properties L.P., a Delaware limited partnership (“VICI”), pursuant to which, among other things, the Company has agreed, subject to the consummation of the Merger and the other applicable conditions set forth therein and in any related documents, (i) through one or more of its subsidiaries (after giving effect to the Merger) to consummate one or more sale and leaseback transactions with VICI and/or its affiliates with respect to certain property described in the MTA, including Harrah’s New Orleans, Harrah’s Laughlin and Harrah’s Atlantic City (or, under certain circumstances, if necessary, certain replacement properties specified in the MTA), (ii) through one or more of its subsidiaries (after giving effect to the Merger) to amend the CPLV Lease, the Non-CPLV Lease and the Joliet Lease (each as defined in the MTA) in accordance with the terms of the MTA and receive certain consideration from VICI or its affiliates in respect thereof, (iii) to provide a guaranty in respect of each of the CPLV Lease, the Non-CPLV Lease and the Joliet Lease in accordance with the terms of the MTA, (iv) to enter into (or cause its applicable subsidiaries (after giving effect to the Merger) to enter into) certain right of first refusal agreements and a put-call right agreement in accordance with the terms of the MTA and (v) to undertake certain related transactions in connection with or related to the foregoing.  The Company expects to apply the proceeds of the VICI transactions to pay a portion of the cash consideration payable in the Merger and transaction expenses associated with the Merger and related transactions.

 

On September 26, 2019, the Company and VICI entered into definitive Purchase and Sale Agreements to effect the purchase and sale of Harrah’s New Orleans, Harrah’s Laughlin and Harrah’s Atlantic City in connection with the transactions described in clause (i) of the preceding paragraph.

 

The Company expects that the Merger and related transactions will be consummated in the first half of 2020.

 

43


 

ITEM 2.

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

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

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

Overview

We are a geographically diversified gaming and hospitality company with 26 gaming facilities in 12 states as of September 30, 2019. Our properties, which are located in Ohio, Louisiana, Nevada, New Jersey, West Virginia, Colorado, Florida, Iowa, Mississippi, Illinois, Indiana and Missouri, feature approximately 26,600 slot machines, video lottery terminals (“VLTs”) and e-tables, approximately 750 table games and approximately 11,800 hotel rooms. Our primary source of revenue is generated by gaming operations, and we utilize our hotels, restaurants, bars, entertainment, racing, sportsbook offerings, 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 to build Silver Legacy Resort Casino, the first mega-themed resort in Reno. In 2005, we acquired our first property outside of Reno when we purchased 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 Reno and the 50% membership interest in the Silver Legacy that was owned by MGM Resorts International. On May 1, 2017, we completed our acquisition of Isle of Capri Casinos, Inc. (“Isle” or “Isle of Capri”), adding 13 gaming properties to our portfolio. On August 7, 2018, we acquired the Elgin Riverboat Resort – Riverboat Casino d/b/a Grand Victoria Casino (“Elgin”) (the “Elgin Acquisition”). On October 1, 2018, we completed our acquisition of Tropicana Entertainment, Inc. (“Tropicana”), and added seven properties to our portfolio (the “Tropicana Acquisition”). On January 11, 2019 and March 8, 2019, respectively, we closed on our sales of Presque Isle Downs & Casino and Lady Luck Casino Nemacolin, which are both located in Pennsylvania.

44


 

The following table sets forth certain information regarding our properties (listed by segment in which each property is reported) as of September 30, 2019:

 

 

 

 

 

 

 

 

Segment

 

Property

 

Date Acquired

 

State

West

 

Eldorado Resort Casino Reno ("Eldorado Reno")

 

(a)

 

Nevada

 

 

Silver Legacy Resort Casino ("Silver Legacy")

 

(a)

 

Nevada

 

 

Circus Circus Reno ("Circus Reno")

 

(a)

 

Nevada

 

 

MontBleu Casino Resort & Spa ("MontBleu")

 

October 1, 2018

 

Nevada

 

 

Tropicana Laughlin Hotel & Casino ("Laughlin")

 

October 1, 2018

 

Nevada

 

 

Isle Casino Hotel - Blackhawk ("Isle Black Hawk")

 

May 1, 2017

 

Colorado

 

 

Lady Luck Casino - Black Hawk ("Lady Luck Black Hawk")

 

May 1, 2017

 

Colorado

 

 

 

 

 

 

 

Midwest

 

Isle Casino Waterloo ("Waterloo")

 

May 1, 2017

 

Iowa

 

 

Isle Casino Bettendorf ("Bettendorf")

 

May 1, 2017

 

Iowa

 

 

Isle of Capri Casino Boonville ("Boonville")

 

May 1, 2017

 

Missouri

 

 

Isle Casino Cape Girardeau ("Cape Girardeau")

 

May 1, 2017 (c)

 

Missouri

 

 

Lady Luck Casino Caruthersville ("Caruthersville")

 

May 1, 2017 (c)

 

Missouri

 

 

Isle of Capri Casino Kansas City ("Kansas City")

 

May 1, 2017 (c)

 

Missouri

 

 

 

 

 

 

 

South

 

Isle Casino Racing Pompano Park ("Pompano")

 

May 1, 2017

 

Florida

 

 

Eldorado Resort Casino Shreveport ("Eldorado Shreveport")

 

(a)

 

Louisiana