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, 2017
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period to
Commission File No. 001‑36629
ELDORADO RESORTS, INC.
(Exact name of registrant as specified in its charter)
Nevada | 46‑3657681 |
(State or other jurisdiction of incorporation or organization) |
Identification No.) |
100 West Liberty Street, Suite 1150, Reno, Nevada 89501
(Address and zip code of principal executive offices)
(775) 328‑0100
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | |
Non‑accelerated filer | ☐ | (Do not check if a | Smaller reporting company | ☐ |
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 October 31, 2016November 2, 2017 was 47,105,744.76,824,595.
ELDORADO RESORTS, INC.
QUARTERLY REPORT FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 20162017
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| Consolidated | 2 | ||
| 3 | |||
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| 4 | ||
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| 5 | ||
| Condensed Notes to Unaudited Consolidated Financial Statements |
| 6 | |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
| 33 | ||
| 53 | |||
| 53 | |||
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| 54 | |||
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| 58 |
1
PART I-FINANCIALI-FINANCIAL INFORMATION
ELDORADO RESORTS, INC.
(dollars in thousands)
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| September 30, |
| December 31, |
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| September 30, |
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| December 31, |
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| 2016 |
| 2015 |
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| 2017 |
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| 2016 |
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| (unaudited) |
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| (unaudited) |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
| $ | 44,609 |
| $ | 78,278 |
|
| $ |
| 134,903 |
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| $ |
| 61,029 |
|
Restricted cash |
|
| 2,395 |
|
| 5,271 |
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|
| 21,307 |
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|
| 2,414 |
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Marketable securities |
|
| 17,461 |
|
|
| — |
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Accounts receivable, net |
|
| 17,061 |
|
| 9,981 |
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|
| 33,129 |
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| 14,694 |
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Due from affiliates |
|
| 71 |
|
|
| — |
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Inventories |
|
| 11,477 |
|
| 11,742 |
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|
| 16,505 |
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|
| 11,055 |
| ||
Prepaid income taxes |
|
| 74 |
|
| 112 |
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|
| 5,353 |
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|
| 69 |
| ||
Prepaid expenses and other |
|
| 16,322 |
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| 10,795 |
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|
| 28,749 |
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|
| 12,492 |
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Assets held for sale |
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| 143,496 |
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|
|
| — |
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Total current assets |
|
| 91,938 |
|
| 116,179 |
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| 400,974 |
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| 101,753 |
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INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES |
|
| 1,286 |
|
| 1,286 |
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PROPERTY AND EQUIPMENT, NET |
|
| 609,795 |
|
| 625,416 |
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| 1,446,354 |
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|
| 612,342 |
| ||
GAMING LICENSES AND OTHER INTANGIBLES, NET |
|
| 488,421 |
|
| 492,033 |
|
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| 954,962 |
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| 487,498 |
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GOODWILL |
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| 66,826 |
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| 66,826 |
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| 746,482 |
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|
| 66,826 |
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NON-OPERATING REAL PROPERTY |
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| 14,218 |
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| 16,314 |
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|
| 18,069 |
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| 14,219 |
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OTHER ASSETS, NET |
|
| 6,390 |
|
| 6,954 |
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|
|
| 18,416 |
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|
|
| 11,406 |
|
Total assets |
| $ | 1,278,874 |
| $ | 1,325,008 |
|
| $ |
| 3,585,257 |
|
| $ |
| 1,294,044 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Current portion of long-term debt |
| $ | 4,539 |
| $ | 4,524 |
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| $ |
| 1,068 |
|
| $ |
| 4,545 |
|
Accounts payable |
|
| 22,701 |
|
| 17,005 |
|
|
| 28,328 |
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|
| 21,576 |
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Due to affiliates |
|
| 169 |
|
| 129 |
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|
| 30 |
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|
| 259 |
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Accrued property, gaming and other taxes |
|
| 16,772 |
|
| 19,424 |
|
|
| 40,772 |
|
|
| 18,790 |
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Accrued payroll and related |
|
| 15,146 |
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| 17,852 |
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|
| 57,814 |
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|
| 14,588 |
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Accrued interest |
|
| 7,707 |
|
| 14,978 |
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|
| 13,193 |
|
|
| 14,634 |
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Deferred proceeds for assets held for sale |
|
| 20,000 |
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|
| — |
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Accrued other liabilities |
|
| 30,601 |
|
| 31,798 |
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|
| 57,080 |
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|
| 27,648 |
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Liabilities related to assets held for sale |
|
|
| 6,790 |
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|
| — |
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Total current liabilities |
|
| 97,635 |
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| 105,710 |
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| 225,075 |
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|
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| 102,040 |
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LONG-TERM DEBT, LESS CURRENT PORTION |
|
| 786,112 |
|
| 861,713 |
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| 2,224,054 |
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| 795,881 |
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DEFERRED INCOME TAXES |
|
| 91,229 |
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| 78,797 |
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|
| 251,978 |
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| 90,385 |
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OTHER LONG-TERM LIABILITIES |
|
| 7,001 |
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| 8,121 |
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| 30,215 |
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|
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| 7,287 |
|
|
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| 981,977 |
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| 1,054,341 |
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|
|
| 2,731,322 |
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|
|
| 995,593 |
|
COMMITMENTS AND CONTINGENCIES (Notes 1 and 10) |
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COMMITMENTS AND CONTINGENCIES (Note 10) |
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STOCKHOLDERS' EQUITY: |
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Common stock, 100,000,000 shares authorized, 47,105,744 and 46,817,829 issued and outstanding, par value $0.00001 as of September 30, 2016 and December 31, 2015, respectively |
|
| — |
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| — |
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Common stock, 100,000,000 shares authorized, 76,804,618 and 47,105,744 issued and outstanding, par value $0.00001 as of September 30, 2017 and December 31, 2016, respectively |
|
| — |
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|
| — |
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Paid-in capital |
|
| 173,285 |
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| 170,897 |
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|
| 745,117 |
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|
| 173,879 |
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Retained earnings |
|
| 123,600 |
|
| 99,758 |
|
|
| 108,806 |
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|
| 124,560 |
| ||
Accumulated other comprehensive income |
|
| 12 |
|
| 12 |
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|
|
| 12 |
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|
|
| 12 |
|
Total stockholders’ equity |
|
| 296,897 |
|
| 270,667 |
|
|
|
| 853,935 |
|
|
|
| 298,451 |
|
Total liabilities and stockholders’ equity |
| $ | 1,278,874 |
| $ | 1,325,008 |
|
| $ |
| 3,585,257 |
|
| $ |
| 1,294,044 |
|
The accompanying condensed notes are an integral part of these consolidated financial statements.
2
ELDORADO RESORTS, INC.
CONSOLIDATED INCOME STATEMENTSTATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
(unaudited)
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| Three Months Ended |
| Nine Months Ended |
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| Three Months Ended |
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| Nine Months Ended |
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| September 30, |
| September 30, |
|
| September 30, |
|
| September 30, |
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| 2016 |
| 2015 |
| 2016 |
| 2015 |
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| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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REVENUES: |
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Casino |
| $ | 184,604 |
| $ | 156,357 |
| $ | 532,141 |
| $ | 460,807 |
|
| $ |
| 367,930 |
|
| $ |
| 184,604 |
|
| $ |
| 825,833 |
|
| $ |
| 532,141 |
|
Pari-mutuel commissions |
|
| 3,527 |
|
| 3,781 |
|
| 7,104 |
|
| 8,042 |
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|
| 5,162 |
|
|
| 3,527 |
|
|
| 9,945 |
|
|
| 7,104 |
| ||||
Food and beverage |
|
| 38,029 |
|
| 24,040 |
|
| 108,735 |
|
| 69,717 |
|
|
| 56,356 |
|
|
| 38,029 |
|
|
| 132,307 |
|
|
| 108,735 |
| ||||
Hotel |
|
| 28,001 |
|
| 9,193 |
|
| 73,843 |
|
| 24,671 |
|
|
| 38,536 |
|
|
| 28,001 |
|
|
| 85,473 |
|
|
| 73,843 |
| ||||
Other |
|
| 12,095 |
|
| 6,165 |
|
| 33,994 |
|
| 17,464 |
|
|
|
| 15,052 |
|
|
|
| 12,095 |
|
|
|
| 35,196 |
|
|
|
| 33,994 |
|
|
|
| 266,256 |
|
| 199,536 |
|
| 755,817 |
|
| 580,701 |
|
|
|
| 483,036 |
|
|
|
| 266,256 |
|
|
|
| 1,088,754 |
|
|
|
| 755,817 |
|
Less-promotional allowances |
|
| (24,691) |
|
| (15,996) |
|
| (69,371) |
|
| (47,077) |
|
|
|
| (38,162 | ) |
|
|
| (24,691 | ) |
|
|
| (87,776 | ) |
|
|
| (69,371 | ) |
Net operating revenues |
|
| 241,565 |
|
| 183,540 |
|
| 686,446 |
|
| 533,624 |
|
|
|
| 444,874 |
|
|
|
| 241,565 |
|
|
|
| 1,000,978 |
|
|
|
| 686,446 |
|
EXPENSES: |
|
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|
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|
|
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|
|
|
|
|
|
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|
|
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|
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Casino |
|
| 103,272 |
|
| 90,398 |
|
| 299,908 |
|
| 268,282 |
|
|
| 184,790 |
|
|
| 103,272 |
|
|
| 428,543 |
|
|
| 299,908 |
| ||||
Pari-mutuel commissions |
|
| 3,506 |
|
| 3,625 |
|
| 7,761 |
|
| 8,414 |
|
|
| 4,601 |
|
|
| 3,506 |
|
|
| 9,793 |
|
|
| 7,761 |
| ||||
Food and beverage |
|
| 21,046 |
|
| 12,461 |
|
| 61,557 |
|
| 36,384 |
|
|
| 26,457 |
|
|
| 21,046 |
|
|
| 66,711 |
|
|
| 61,557 |
| ||||
Hotel |
|
| 7,956 |
|
| 2,340 |
|
| 23,064 |
|
| 6,843 |
|
|
| 10,138 |
|
|
| 7,956 |
|
|
| 24,767 |
|
|
| 23,064 |
| ||||
Other |
|
| 7,298 |
|
| 4,079 |
|
| 19,990 |
|
| 10,513 |
|
|
| 7,792 |
|
|
| 7,298 |
|
|
| 18,689 |
|
|
| 19,990 |
| ||||
Marketing and promotions |
|
| 11,323 |
|
| 7,816 |
|
| 30,664 |
|
| 22,321 |
|
|
| 24,634 |
|
|
| 11,323 |
|
|
| 54,845 |
|
|
| 30,664 |
| ||||
General and administrative |
|
| 34,094 |
|
| 23,285 |
|
| 98,129 |
|
| 69,882 |
|
|
| 68,585 |
|
|
| 34,094 |
|
|
| 155,778 |
|
|
| 98,129 |
| ||||
Corporate |
|
| 4,426 |
|
| 3,652 |
|
| 15,684 |
|
| 11,713 |
|
|
| 7,718 |
|
|
| 4,426 |
|
|
| 21,734 |
|
|
| 15,684 |
| ||||
Depreciation and amortization |
|
| 15,810 |
|
| 13,954 |
|
| 47,597 |
|
| 42,454 |
|
|
|
| 29,122 |
|
|
|
| 15,810 |
|
|
|
| 69,635 |
|
|
|
| 47,597 |
|
Total operating expenses |
|
| 208,731 |
|
| 161,610 |
|
| 604,354 |
|
| 476,806 |
|
|
|
| 363,837 |
|
|
|
| 208,731 |
|
|
|
| 850,495 |
|
|
|
| 604,354 |
|
GAIN (LOSS) ON SALE OR DISPOSAL OF PROPERTY |
|
| 25 |
|
| (6) |
|
| (740) |
|
| (2) |
| ||||||||||||||||||||
GAIN (LOSS) ON SALE OF ASSET OR DISPOSAL OF PROPERTY |
|
| 4 |
|
|
| 25 |
|
|
| (51 | ) |
|
| (740 | ) | |||||||||||||||||
ACQUISITION CHARGES |
|
| (4,750) |
|
| (380) |
|
| (5,326) |
|
| (717) |
|
|
| (2,094 | ) |
|
| (4,750 | ) |
|
| (89,172 | ) |
|
| (5,326 | ) | ||||
EQUITY IN INCOME OF UNCONSOLIDATED AFFILIATE |
|
| — |
|
| 2,548 |
|
| — |
|
| 3,136 |
| ||||||||||||||||||||
EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATE |
|
|
| (23 | ) |
|
|
| — |
|
|
|
| (305 | ) |
|
|
| — |
| |||||||||||||
OPERATING INCOME |
|
| 28,109 |
|
| 24,092 |
|
| 76,026 |
|
| 59,235 |
|
|
|
| 78,924 |
|
|
|
| 28,109 |
|
|
|
| 60,955 |
|
|
|
| 76,026 |
|
OTHER EXPENSE: |
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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
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|
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|
Interest expense, net |
|
| (12,589) |
|
| (14,482) |
|
| (38,375) |
|
| (48,946) |
|
|
| (29,183 | ) |
|
| (12,589 | ) |
|
| (69,380 | ) |
|
| (38,375 | ) | ||||
Loss on early retirement of debt, net |
|
| — |
|
| (1,790) |
|
| (155) |
|
| (1,790) |
|
|
| (10,030 | ) |
|
| — |
|
|
| (37,347 | ) |
|
| (155 | ) | ||||
Total other expense |
|
| (12,589) |
|
| (16,272) |
|
| (38,530) |
|
| (50,736) |
|
|
|
| (39,213 | ) |
|
|
| (12,589 | ) |
|
|
| (106,727 | ) |
|
|
| (38,530 | ) |
NET INCOME BEFORE INCOME TAXES |
|
| 15,520 |
|
| 7,820 |
|
| 37,496 |
|
| 8,499 |
| ||||||||||||||||||||
PROVISION FOR INCOME TAXES |
|
| (5,838) |
|
| (2,421) |
|
| (13,654) |
|
| (4,469) |
| ||||||||||||||||||||
NET INCOME |
| $ | 9,682 |
| $ | 5,399 |
| $ | 23,842 |
| $ | 4,030 |
| ||||||||||||||||||||
Net Income per share of Common Stock: |
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|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Basic |
| $ | 0.21 |
| $ | 0.12 |
| $ | 0.51 |
| $ | 0.09 |
| ||||||||||||||||||||
Diluted |
| $ | 0.20 |
| $ | 0.12 |
| $ | 0.50 |
| $ | 0.09 |
| ||||||||||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
|
|
| 39,711 |
|
|
|
| 15,520 |
|
|
|
| (45,772 | ) |
|
|
| 37,496 |
| |||||||||||||
(PROVISION) BENEFIT FOR INCOME TAXES |
|
|
| (11,595 | ) |
|
|
| (5,838 | ) |
|
|
| 27,625 |
|
|
|
| (13,654 | ) | |||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS |
|
|
| 28,116 |
|
|
|
| 9,682 |
|
|
|
| (18,147 | ) |
|
|
| 23,842 |
| |||||||||||||
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAXES |
|
|
| 1,438 |
|
|
|
| — |
|
|
|
| 2,393 |
|
|
|
| — |
| |||||||||||||
NET INCOME (LOSS) |
| $ |
| 29,554 |
|
| $ |
| 9,682 |
|
| $ |
| (15,754 | ) |
| $ |
| 23,842 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| |||||||||||||
Income (loss) per common share attributable to common stockholders - basic: |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
| |||||||||||||||||
Income (loss) from continuing operations |
| $ |
| 0.36 |
|
| $ |
| 0.21 |
|
| $ |
| (0.28 | ) |
| $ |
| 0.51 |
| |||||||||||||
Income from discontinued operations, net of income taxes |
|
|
| 0.02 |
|
|
|
| — |
|
|
|
| 0.03 |
|
|
|
| — |
| |||||||||||||
Net income (loss) attributable to common stockholders |
| $ |
| 0.38 |
|
| $ |
| 0.21 |
|
| $ |
| (0.25 | ) |
| $ |
| 0.51 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Income (loss) per common share attributable to common stockholders - diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Income (loss) from continuing operations |
| $ |
| 0.36 |
|
| $ |
| 0.20 |
|
| $ |
| (0.28 | ) |
| $ |
| 0.50 |
| |||||||||||||
Income from discontinued operations, net of income taxes |
|
|
| 0.02 |
|
|
|
| — |
|
|
|
| 0.03 |
|
|
|
| — |
| |||||||||||||
Net income (loss) attributable to common stockholders |
| $ |
| 0.38 |
|
| $ |
| 0.20 |
|
| $ |
| (0.25 | ) |
| $ |
| 0.50 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Weighted Average Basic Shares Outstanding |
|
| 47,193,120 |
|
| 46,516,614 |
|
| 47,106,706 |
|
| 46,509,369 |
|
|
|
| 76,902,070 |
|
|
|
| 47,193,120 |
|
|
|
| 63,821,705 |
|
|
|
| 47,106,706 |
|
Weighted Average Diluted Shares Outstanding |
|
| 47,834,644 |
|
| 46,763,589 |
|
| 47,737,592 |
|
| 46,620,959 |
|
|
|
| 77,959,689 |
|
|
|
| 47,834,644 |
|
|
|
| 64,768,174 |
|
|
|
| 47,737,592 |
|
The accompanying condensed notes are an integral part of these consolidated financial statements.
3
ELDORADO RESORTS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||
NET INCOME |
| $ | 9,682 |
| $ | 5,399 |
| $ | 23,842 |
| $ | 4,030 |
|
Other Comprehensive Income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income |
|
| — |
|
| — |
|
| — |
|
| — |
|
Comprehensive Income, net of tax |
| $ | 9,682 |
| $ | 5,399 |
| $ | 23,842 |
| $ | 4,030 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||||||
NET INCOME (LOSS) |
| $ |
| 29,554 |
|
| $ |
| 9,682 |
|
| $ |
| (15,754 | ) |
| $ |
| 23,842 |
|
Other Comprehensive Income (Loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
Comprehensive Income (Loss), net of tax |
| $ |
| 29,554 |
|
| $ |
| 9,682 |
|
| $ |
| (15,754 | ) |
| $ |
| 23,842 |
|
The accompanying condensed notes are an integral part of these consolidated financial statements.
4
ELDORADO RESORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
|
|
|
|
|
|
|
| ||||||||||
|
| Nine Months Ended |
|
| Nine Months Ended |
| |||||||||||
|
| September 30, |
|
| September 30, |
| |||||||||||
|
| 2016 |
| 2015 |
|
| 2017 |
|
| 2016 |
| ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 23,842 |
| $ | 4,030 |
| ||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
| ||||||||||
Net (loss) income |
| $ |
| (15,754 | ) |
| $ |
| 23,842 |
| |||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
|
|
| |||||||||
Depreciation and amortization |
|
| 47,597 |
|
| 42,454 |
|
|
| 69,635 |
|
|
|
| 47,597 |
| |
Amortization of debt issuance costs and discount (premium) |
|
| 2,614 |
|
| (5,259) |
| ||||||||||
Equity in income of unconsolidated affiliate |
|
| — |
|
| (3,136) |
| ||||||||||
Loss on early retirement of debt, net |
|
| 155 |
|
| 1,790 |
| ||||||||||
Amortization of deferred financing costs, discount and debt premium |
|
| 5,041 |
|
|
|
| 2,614 |
| ||||||||
Equity in loss of unconsolidated affiliate |
|
| 305 |
|
|
|
| — |
| ||||||||
Loss on early extinguishment of debt |
|
| 37,347 |
|
|
|
| 155 |
| ||||||||
Change in fair value of acquisition related contingencies |
|
| 1 |
|
| 52 |
|
|
| 36 |
|
|
|
| 1 |
| |
Stock-based compensation expense |
|
| 2,749 |
|
| 1,155 |
| ||||||||||
Loss on sale or disposal of property |
|
| 740 |
|
| 2 |
| ||||||||||
Stock compensation expense |
|
| 4,454 |
|
|
|
| 2,749 |
| ||||||||
Loss on disposal of assets |
|
| 51 |
|
|
|
| 740 |
| ||||||||
Provision for bad debts |
|
| 308 |
|
| 46 |
|
|
| 397 |
|
|
|
| 308 |
| |
Provision for deferred income taxes |
|
| 12,432 |
|
| 3,206 |
| ||||||||||
(Benefit) provision for deferred income taxes |
|
| (25,535 | ) |
|
|
| 12,432 |
| ||||||||
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Restricted cash |
|
| 2,876 |
|
| 4,094 |
|
|
| 200 |
|
|
|
| 2,876 |
| |
Sale of trading securities |
|
| 272 |
|
|
|
| — |
| ||||||||
Accounts receivable |
|
| (7,388) |
|
| (2,137) |
|
|
| (6,939 | ) |
|
|
| (7,388 | ) | |
Inventories |
|
| 265 |
|
| 69 |
| ||||||||||
Prepaid expenses and other |
|
| (5,489) |
|
| (310) |
| ||||||||||
Accounts payable |
|
| 3,735 |
|
| 642 |
| ||||||||||
Inventory |
|
| 17 |
|
|
|
| 265 |
| ||||||||
Prepaid expenses and other assets |
|
| 2,054 |
|
|
|
| (5,489 | ) | ||||||||
Interest payable |
|
| (7,271) |
|
| (20,593) |
|
|
| (1,441 | ) |
|
|
| (7,271 | ) | |
Income taxes payable |
|
| — |
|
| (34) |
| ||||||||||
Accrued and other liabilities and due to affiliates |
|
| (4,916) |
|
| (5,543) |
| ||||||||||
Income taxes receivable/payable |
|
| (1,268 | ) |
|
|
| — |
| ||||||||
Accounts payable and accrued liabilities |
|
|
| 2,959 |
|
|
|
| (1,181 | ) | |||||||
Net cash provided by operating activities |
|
| 72,250 |
|
| 20,528 |
|
|
|
| 71,831 |
|
|
|
| 72,250 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, net of payables |
|
| (32,949) |
|
| (24,414) |
| ||||||||||
Purchase of property and equipment, net |
|
| (53,181 | ) |
|
|
| (32,949 | ) | ||||||||
Reimbursement of capital expenditures from West Virginia regulatory authorities |
|
| 251 |
|
|
|
| 4,113 |
| ||||||||
Restricted cash |
|
| 1,617 |
|
|
|
| — |
| ||||||||
Proceeds from sale of property and equipment |
|
| — |
|
|
| 1,560 |
| |||||||||
Net cash used in business combinations |
|
| (491) |
|
| — |
|
|
| (1,343,659 | ) |
|
| (491 | ) | ||
Net proceeds from sale of property and equipment |
|
| 1,560 |
|
| 6 |
| ||||||||||
Cash escrow deposit required for acquisition |
|
| — |
|
| (55,460) |
| ||||||||||
Decrease in restricted cash due to credit support deposit |
|
| — |
|
| 2,500 |
| ||||||||||
Reimbursement of capital expenditures from West Virginia regulatory authorities |
|
| 4,113 |
|
| — |
| ||||||||||
Decrease (increase) in other assets, net |
|
| 564 |
|
| (944) |
| ||||||||||
Decrease in other assets, net |
|
|
| — |
|
|
|
| 564 |
| |||||||
Net cash used in investing activities |
|
| (27,203) |
|
| (78,312) |
|
|
|
| (1,394,972 | ) |
|
|
| (27,203 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Senior Notes |
|
| — |
|
| 375,000 |
| ||||||||||
Proceeds from issuance of New Term Loan |
|
| 1,450,000 |
|
|
| — |
| |||||||||
Proceeds from issuance of 6% Senior Notes |
|
| 875,000 |
|
|
|
| — |
| ||||||||
Borrowings under New Revolving Credit Facility |
|
| 166,953 |
|
|
|
| — |
| ||||||||
Payments under Term Loan |
|
| (3,188) |
|
| 425,000 |
|
|
| (1,062 | ) |
|
|
| (3,188 | ) | |
Net payments under Revolving Credit Facility |
|
| (74,500) |
|
| 16,937 |
| ||||||||||
Retirement of long-term debt |
|
| — |
|
| (728,664) |
| ||||||||||
Payments under New Term Loan |
|
| (448,125 | ) |
|
|
| — |
| ||||||||
Payments under New Revolving Credit Facility |
|
| (166,953 | ) |
|
|
| — |
| ||||||||
Borrowings (payments) under Revolving Credit Facility |
|
| 41,000 |
|
|
|
| (74,500 | ) | ||||||||
Payments under Revolving Credit Facility |
|
| (29,000 | ) |
|
|
| — |
| ||||||||
Retirement of Term Loan |
|
| (417,563 | ) |
|
|
| — |
| ||||||||
Retirement of Revolving Credit Facility |
|
| (41,000 | ) |
|
|
| — |
| ||||||||
Debt premium proceeds |
|
| 27,500 |
|
|
|
| — |
| ||||||||
Payment of other long-term obligation |
|
| (23 | ) |
|
|
| — |
| ||||||||
Payments on capital leases |
|
| (204) |
|
| (29) |
|
|
| (347 | ) |
|
|
| (204 | ) | |
Debt issuance costs |
|
| (463) |
|
| (25,223) |
|
|
| (51,338 | ) |
|
|
| (463 | ) | |
Taxes paid related to net share settlement of equity awards |
|
| (1,366) |
|
| — |
|
|
| (10,927 | ) |
|
|
| (1,366 | ) | |
Call premium on early retirement of debt |
|
| — |
|
| (44,090) |
| ||||||||||
Proceeds from exercise of stock options |
|
| 1,005 |
|
| — |
|
|
|
| 2,900 |
|
|
|
| 1,005 |
|
Net cash (used in) provided by financing activities |
|
| (78,716) |
|
| 18,931 |
| ||||||||||
DECREASE IN CASH AND CASH EQUIVALENTS |
|
| (33,669) |
|
| (38,853) |
| ||||||||||
Net cash provided by (used in) financing activities |
|
|
| 1,397,015 |
|
|
|
| (78,716 | ) | |||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
| 73,874 |
|
|
|
| (33,669 | ) | |||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
|
| 78,278 |
|
| 87,604 |
|
|
|
| 61,029 |
|
|
|
| 78,278 |
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | 44,609 |
| $ | 48,751 |
|
| $ |
| 134,903 |
|
| $ |
| 44,609 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
| $ | 43,000 |
| $ | 74,806 |
|
| $ |
| 67,840 |
|
| $ |
| 43,000 |
|
Cash paid during period for income taxes |
|
| 1,406 |
|
| 1,102 |
|
|
| 714 |
|
|
|
| 1,406 |
| |
NON-CASH FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Payables for capital expenditures |
|
| 1,961 |
|
| 194 |
|
|
| 2,286 |
|
|
|
| 1,961 |
|
The accompanying condensed notes are an integral part of these consolidated financial statements.
5
ELDORADO RESORTS, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation
Organization
The accompanying unaudited consolidated financial statements include the accounts of Eldorado Resorts, Inc. (“ERI” or the “Company”), a Nevada corporation formed in September 2013, and its consolidated subsidiaries. ERI was formedThe Company acquired Mountaineer, Presque Isle Downs and Scioto Downs in September 20132014 pursuant to be the parent company following thea merger of wholly-owned subsidiaries of the Company into Eldorado HoldCo LLC (“HoldCo”(the “MTR Merger”), a Nevada limited liability company formed in 2009 that is the parent company of Eldorado Resorts LLC (“Resorts”), and with MTR Gaming Group, Inc. (“MTR Gaming”), a Delaware corporation incorporated and in 1988 (the “Merger”). Effective upon the consummation of the Merger on September 19, 2014 (the “Merger Date”), MTR Gaming and HoldCo each became a wholly-owned subsidiary of ERI and, as a result of such transactions, Resorts became an indirect wholly-owned subsidiary of ERI. The Merger has been accounted for as a reverse acquisition of MTR Gaming by HoldCo under accounting principles generally accepted in the United States (“US GAAP”). As a result, HoldCo is considered the acquirer of MTR Gaming for accounting purposes. Intercompany accounts and transactions have been eliminated in consolidation.
On November 24, 2015 (the “Reno Acquisition Date”), Resorts consummated the acquisition of all of the assets and properties of Circus Circus Reno (“Circus Reno”) and the 50% membership interest in the joint venture (the “Silver Legacy Joint Venture”) owned by Galleon, Inc. (collectively, the “Circus Reno/Silver Legacy Purchase” or the “Reno Acquisition”) pursuant to a Purchase and Sale Agreement, dated as of July 7, 2015 (the “Purchase Agreement”), entered into with Circus Circus Casinos, Inc. and Galleon, Inc., each an affiliate of MGM Resorts International, with respect to the acquisition. On the Reno Acquisition Date, Resorts also exercised its right to acquire the 3.8% interest in Eldorado Limited Liability Company (“ELLC”) held by certain affiliates and shareholders of the Company. As a result of these transactions, ELLC and CC-Reno, LLC, a newly formed Nevada limited liability company, became wholly-owned subsidiaries of ERI, and Silver Legacy Joint Venture became an indirect wholly‑owned subsidiary of ERI. The accompanying unaudited consolidated financial statements for periods prior to the Reno Acquisition Date do not include the results of operations forit acquired Circus Reno and reportthe interests in the Silver Legacy Joint Venture as an investment in an unconsolidated affiliate.that it did not own prior to such date (the “Reno Acquisition”).
Resorts ownsThroughout the three and operatesnine months ended September 30, 2017, ERI owned and operated the following properties:
Eldorado Resort Casino Reno a premier(“Eldorado Reno”)—A 814-room hotel, casino and entertainment facility centrallyconnected via an enclosed skywalk to Silver Legacy and Circus Reno located in downtown Reno, Nevada (“that includes 1,125 slot machines and 46 table games;
Silver Legacy Resort Casino (“Silver Legacy”)—A 1,711-room themed hotel and casino connected via an enclosed skywalk to Eldorado Reno”Reno and Circus Reno that includes 1,187 slot machines, 63 table games and a 13 table poker room;
Circus Circus Reno (“Circus Reno”), which opened for business in 1973. Resorts also owns —A 1,571-room hotel-casino and entertainment complex connected via an enclosed skywalk to Eldorado Reno and Silver Legacy that includes 720 slot machines and 26 table games;
Eldorado Resort Casino Shreveport (“(“Eldorado Shreveport”Shreveport”), a 403‑room—A 403-room, all suite art deco‑styledeco-style hotel and a tri‑leveltri-level riverboat dockside casino complex situated on the Red River in Shreveport, Louisiana which commenced operations under its previous owners in December 2000.
Prior to the Reno Acquisition Date, Resorts owned a 48.1% interest in the Silver Legacy Joint Venture which owns the Silver Legacy Resort Casino (“Silver Legacy”), a major themed hotelthat includes 1,397 slot machines, 52 table games and casino situated between and seamlessly connected at the mezzanine level to the Eldorado Reno and Circus Reno. Resorts acquired the remaining interest in Silver Legacy in 2015 as well as acquiring Circus Reno.an eight table poker room;
MTR Gaming operates as a hospitality and gaming company with racetrack, gaming and hotel properties in West Virginia, Pennsylvania and Ohio. MTR Gaming, through its wholly-owned subsidiaries, owns and operates Mountaineer Casino, Racetrack & Resort in Chester,(“Mountaineer”)—A 357-room hotel, casino and entertainment facility and live thoroughbred horse racing located on the Ohio River at the northern tip of West Virginia (“Mountaineer”), ’s northwestern panhandle that includes 1,505 slot machines, 36 table games and a 10 table poker room;
Presque Isle Downs & Casino (“Presque Isle Downs”)—A casino and live thoroughbred horse racing facility with 1,596 slot machines, 32 table games and a seven table poker room located in Erie, Pennsylvania (“Presque Isle Downs”),Pennsylvania; and
Eldorado Gaming Scioto Downs (“(“Scioto Downs”Downs”) in—A modern “racino” offering 2,245 video lottery terminals (“VLT”), harness racing and a 118-room third party hotel connected to Scioto Downs located 15 minutes from downtown Columbus, Ohio. Scioto Downs, through
In addition, on May 1, 2017, the Company consummated its subsidiary, RacelineBet,acquisition of Isle of Capri Casinos, Inc., also operates Racelinebet.com, and acquired the following properties:
Isle Casino Hotel—Black Hawk (“Isle Black Hawk”)—A land-based casino on an approximately 10-acre site in Black Hawk, Colorado that includes 993 slot machines, 27 table games, a national account wagering servicenine table poker room and a 238-room hotel;
Lady Luck Casino—Black Hawk (“Lady Luck Black Hawk”)—A land-based casino across the intersection from Isle Casino Hotel in Black Hawk, Colorado, that offers onlineincludes 430 slot machines, 10 table games, five poker tables and telephone wageringa 164-room hotel with a parking structure connecting Isle Casino Hotel-Black Hawk and Lady Luck Casino-Black Hawk;
Isle Casino Racing Pompano Park (“Pompano”)—A casino and harness racing track on horse races asan approximately 223-acre owned site in Pompano Beach, Florida, that includes 1,459 slot machines and a marketing affiliate45 table poker room;
Isle Casino Bettendorf (“Bettendorf”)—A land-based single-level casino located off of TwinSpires.com,Interstate 74 in Bettendorf, Iowa that includes 978 slot machines and 20 table games with two hotel towers with 509 hotel rooms;
Isle Casino Waterloo (“Waterloo”)—A single-level land-based casino in Waterloo, Iowa that includes 940 slot machines, 25 table games, and a 194-room hotel;
Isle of Capri Casino Hotel Lake Charles (“Lake Charles”)—A gaming vessel on an affiliateapproximately 19 acre site in Lake Charles, Louisiana, with 1,160 slot machines, 49 table games, including 13 poker tables and two hotels offering 493 rooms;
Isle of Churchill Downs, Inc.Capri Casino Lula (“Lula”)—Two dockside casinos in Lula, Mississippi with 879 slot machines and 20 table games, two on-site hotels with a total of 486 rooms and a 28-space RV Park;
• | Lady Luck Casino Vicksburg (“Vicksburg”)—A dockside casino in Vicksburg, Mississippi that includes 619 slot machines, nine table games and a hotel with a total of 89 rooms; |
Isle of Capri Casino Boonville (“Boonville”)—A single-level dockside casino in Boonville, Missouri that includes 893 slot machines, 20 table games and a 140-room hotel;
Isle Casino Cape Girardeau (“Cape Girardeau”)—A dockside casino and pavilion and entertainment center in Cape Girardeau, Missouri that includes 881 slot machines, 20 table games and four poker tables;
Lady Luck Casino Caruthersville (“Caruthersville”)—A riverboat casino located along the Mississippi River in Caruthersville, Missouri that includes 513 slot machines and nine table games;
Isle of Capri Casino Kansas City (“Kansas City”)—A dockside casino located close to downtown Kansas City, Missouri offering 967 slot machines and 18 table games; and
Lady Luck Casino Nemacolin (“Nemacolin”)—A casino property located on the 2,000-acre Nemacolin Woodlands Resort in Western Pennsylvania that includes 600 slot machines and 28 table games.
On August 22, 2016, Isle entered into an agreement to sell Lake Charles for aggregate consideration of $134.5 million, subject to certain adjustments. The transaction (the “Lake Charles Disposition”) remains subject to Louisiana Gaming Control Board approval and other customary closing conditions and, if obtained, the transaction is expected to be completed by December 31, 2017.
Agreement to AcquireAcquisition of Isle of Capri Casinos, Inc.
On September 19, 2016,May 1, 2017 (the “Isle Acquisition Date”), the Company entered into ancompleted its acquisition of Isle of Capri Casinos, Inc. pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) dated as of September 19, 2016 with Isle of Capri Casinos, Inc., a Delaware corporation (“Isle” or “Isle of Capri”), Eagle I Acquisition Corp., a Delaware corporation and a direct wholly ownedwholly-owned subsidiary of the Company, (“Merger Sub A”), and Eagle II
6
Acquisition Company LLC, a Delaware limited liability company and a direct wholly ownedwholly-owned subsidiary of the Company (“Merger Sub B”(the “Isle Acquisition” or the “Isle Merger”). TheAs a result of the Isle Merger, Agreement provides for, among other things, (1) the mergerIsle became a wholly-owned subsidiary of Merger Sub A with ERI and, into Isle, with Isle as the surviving entity (the “First Step Merger”), and (2) a subsequent merger whereby Isle will merge with and into Merger Sub B, with Merger Sub B as the surviving entity (the “Second Step Merger” and together with the First Step Merger, the “Mergers”). Isle’s stockholders may elect to exchange each share of Isle common stock held by such stockholder, at the effective time of the First StepIsle Merger, for eithereach outstanding share of Isle’s stock converted into the right to receive $23.00 in cash or 1.638 shares of CompanyERI common stock. Elections arestock (the “Stock Consideration”), at the election of the applicable Isle shareholder and subject to proration and reallocation such that the outstanding shares of Isle common stock will bewere exchanged for aggregate consideration comprised of 58% cash, or $552.0 million, and 42% CompanyERI common stock, or 28.5 million newly issued shares of ERI common stock. The First Step Merger is subject to adoption of the Merger Agreement by holders of at least two-thirds of Isle’s outstanding common stock and the issuance of Company stock pursuant to the Merger Agreement is subject to approval of holders of a majority of the Company’s outstanding common stock. Each party’s obligation to consummate the Mergers is subject to customary conditions, including, among others: (i) stockholder approval of both the Company and Isle as described above; (ii) receipt of required approvals of gaming authorities; and (iii) absence of any order or legal requirement that prohibits or makes the Mergers illegal. The waiting period under the Hart-Scott-Rodino Act terminated on October 21, 2016. The obligation of the Company to consummate the Mergers is subject to the absence of a material adverse effect on Isle and the obligation of Isle to consummate the Mergers is subject to the absence of a material adverse effect on the Company. The obligation of the Company to consummate the Mergers is not subject to a financing condition.total purchase consideration was $1.93 billion (See Note 2).
Additionally, the Merger Agreement contains certain termination rights for both the Company and Isle including, among others, a mutual termination right if the Mergers have not been consummated on or prior to June 19, 2017 (which may be extended for an additional 90 days by either the Company or Isle if all of the conditions precedent other than the receipt of required gaming approvals have been satisfied). Upon the termination of the Merger Agreement under certain circumstances, the Company or Isle may be required to pay a termination fee of $60 million or $30 million, respectively. The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement.
In connection with the execution of the Merger Agreement, on September 19, 2016, Recreational Enterprises, Inc. (“REI”),Isle Acquisition, the Company and Isle entered into a voting agreement and GFIL Holdings, LLC (“GFIL”), the Company and Isle entered into a voting agreement pursuant to which, REI has agreed, among other things, to vote all of its shares of Company common stock in favor of the issuance of shares of Company common stock as stock consideration in the Mergers and GFIL has agreed, among other things, to vote all of its shares of Isle common stock in favor of the Mergers and adoption of the Merger Agreement.
Upon completion of the Mergers, the Company will add 12 additional properties to its portfolio after giving effect to the planned dispositions of Isle of Capri Casino Hotel Lake Charles and Lady Luck Casino Marquette. On August 22, 2016, Isle entered into an agreement to sell Isle of Capri Casino Hotel Lake Charles for aggregate consideration of $134.5 million, subject to certain adjustments. On October 13, 2016, Isle entered into an agreement to sell Lady Luck Casino Marquette for cash consideration of approximately $40.0 million, subject to certain adjustments.
In connection with entering into the Merger Agreement, on September 19, 2016, the Company entered intocompleted a debt financing commitment letter with JPMorgan Chase Bank, N.A. as modified by the five separate written joinders to the Commitment Letter entered into by ERI and JPMorgan Chase Bank, N.A. with each of Macquarie Capital Funding LLC, KeyBank, National Association, Capital One, National Association, SunTrust Bank and U.S. Bank National Association and certain affiliates of such parties (the “Commitment Letter”). The Commitment Letter provides for:transaction comprised of: (a) a senior secured credit facility in an aggregate principal amount of $1.75 billion comprised ofwith a (i) a term loan facility of up to $1.45 billion and (ii) a revolving credit facility of $300$300.0 million and (b) an amount equal to at least $375$375.0 million in gross proceeds from the issuance and sale by the Company of senior unsecured notes or, if the notes are not issued and sold on or prior to the date of the consummation of the Mergers, an amount equal to at least $375 million in senior unsecured bridge loans under a senior unsecured credit facility.notes. The proceeds of such borrowings may bewere used (w)(v) to pay the cash portion of the consideration payable in the Mergers, (x)Isle Merger, (w) refinance all of Isle’s existing credit facilities, and(x) redeem or otherwise repurchase all of Isle’s senior and senior subordinated notes, (y) refinance the Company’s existing credit facility and (z) pay transaction fees and expenses related to the foregoing. The availabilityforegoing (See Note 7 for further discussion of the borrowings is subjectrefinancing transaction and terms of such indebtedness).
Acquisition charges attributed to the satisfactionIsle Acquisition are reported on the accompanying statement of certain customary conditions.operations related to legal, accounting, financial advisory services, severance, stock awards and other costs totaling $2.1 million and $89.2 million for the three and nine months ended September 30, 2017, respectively, and $4.7 million for the three and nine months ended September 30, 2016. As of September 30, 2017, $0.2 million of accrued costs and expenses related to the Isle Acquisition are included in accrued other liabilities. Additionally, we recognized a loss of $27.3 million for the nine months ended September 30, 2017 related to the extinguishment of Isle debt and the payment of interest and call premiums in conjunction with the Isle Acquisition.
The presentation of information herein for periods prior to the Isle Acquisition Date and after the Isle Acquisition Date are not fully comparable because the results of operations for Isle are not included for periods prior to the Isle Acquisition Date. Summary financial results of Isle for the three and nine months ended January 22, 2017 are included in Isle’s Quarterly Report on Form 10-Q as filed with the Securities and Exchange Commission (“SEC”). In conjunction with the Isle Acquisition, Isle is no longer required to file quarterly and annual reports with the SEC, and terminated its registration on May 11, 2017.
Reclassifications
Certain reclassifications of prior year presentations have been made to conform to the current period presentation.
The accompanying unaudited consolidated financial statements of the Company and its subsidiaries have been prepared in accordance underwith accounting principles generally accepted in the United States for interim financial
7
information with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, all of which are normal and recurring, considered necessary for a fair presentation and have been included herein. The results of operations for these interim periods are not necessarily indicative of the operating results for other quarters, for the full year or any future period.
The executive decision makersmaker of our Company reviewreviews operating results, assessassesses performance and makemakes decisions on a “significant market” basis. The Company’s management views each of its properties as an operating segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, the regulatory environments in which they operate, and their management and reporting structure. ThePrior to the Isle Acquisition, the Company’s principal operating activities occuroccurred in three geographic regions: Nevada, Louisiana and parts of the eastern United States. The Company has aggregated its operations into three reportable segments based on the similar characteristics of the operating segments within the regions in which they operate. We, therefore, consider Eldorado Reno, Silver Legacyoperated. Following the Isle Acquisition, the Company’s principal operating activities occur in four geographic regions and Circus Reno as Nevada, Eldorado Shreveport as Louisiana,reportable segments based on the similar characteristics of the operating segments within the regions in which the Company operates: West, Midwest, South, and Scioto Downs, Presque Isle DownsEast (See Note 12 for the list of properties included in each segment for the three and Mountaineer as Eastern.nine months ended September 30, 2017 and 2016).
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, 2015. 2016.
ReclassificationsSummary of Significant Accounting Policies - Updates
Certain reclassificationsMarketable securities consist primarily of prior year presentations have been madetrading securities held by the Company’s captive insurance subsidiary. The trading securities are primarily debt and equity securities that are purchased with the intention to conform toresell in the near term. The trading securities are carried at fair value with changes in fair value recognized in current period presentation.income in the accompanying statements of operations. This accounting policy was implemented as of the Isle Acquisition Date.
Recently Issued Accounting Pronouncements – New Developments
In August 2016,May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, “ClassificationNo. 2017-09, which amends the scope of Certain Cash Receiptsmodification accounting for share-based payment arrangements. An entity should account for the effects of a modification unless the fair value, vesting conditions, and Cash Payments”. This new guidance is intended to reduce diversity in practice in how certain cash receiptsclassification of the awards are the same immediately before and payments are classified inafter the statement of cash flows, including debt prepayment or extinguishment costs, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, and distributions from certain equity method investees.modification. The guidancestandard is effective for the financial statements issued for annual periods and interim andperiods within those annual periods, beginning after December 15, 2017, and early adoption is permitted. The guidance requires application using a retrospective transition method. We anticipate adopting this accounting standard during the first quarter of 2018, and are currently evaluating the impact of adopting this guidance on our consolidated financial statements.
In May 2016, the 2014 (amended January 2017), FASB issued ASU 2016-12, “Revenue from Contracts with Customers –Narrow-Scope Improvements and Practical Expedients.” This pronouncement addresses narrow-scope improvements to the guidance on collectability, noncash consideration, and completed contracts at transition. Additionally, the amendments in this update provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. This update affects the guidance in ASU 2014-09, RevenueNo. 2014‑09, “Revenue from Contracts with Customers, (Topic 606),” which is not yet effective.provides guidance for revenue recognition. The effective datenew standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and transition requirementseliminates existing industry guidance, including revenue recognition guidance specific to the gaming industry. The FASB has also recently issued several amendments to the standard, including narrow-scope improvements and practical expedients (ASU 2016-12) and clarification on accounting for the amendments in this update are the same as the effective date and transition requirements for Topic 606. We are currently evaluating the impact of adopting this guidance on our consolidated financial statementsidentifying performance obligations (ASU 2016-10).
In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers – Identifying Performance Obligations and Licensing.” This pronouncement was issued to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and complexity of applying certain aspects The core principle of the guidance both at implementation and on an ongoing basis. The update guidance expands howrevenue model indicates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update affectsThe standard is designed to create greater comparability for financial statement users across industries and jurisdictions and also requires enhanced disclosures. The guidance is effective for interim and annual periods beginning after December 15, 2017, and should be applied using the full retrospective method or retrospectively with the cumulative effect initially applying the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), whichrecognized at the date of initial application. While early adoption is not yet effective. The effective datepermitted for interim and transition requirements for the amendments in this update are the same as the effective date and transition requirements for Topic 606. We are currently evaluating the impact of adopting this guidance on our consolidated financial statements.
8
In March 2016, the FASB issued ASU 2016-09, “Compensation—Stock Compensation.” This ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. These areas include income tax consequences, classification of awards as either equity or a liability, and classification on the statement of cash flow. The effective date is for annual and interim periods beginning after December 15, 2016, with early adoption permitted.we anticipate adopting this standard on January 1, 2018, on a full retrospective basis. We elected to early adopt this ASU prospectivelyare currently in the first quarterprocess of 2016. Underevaluating the full impact adoption of ASU 2014‑09 (as amended) will have on our consolidated financial statements, including any new guidance, weconsiderations with respect to the Isle Acquisition. We anticipate this new standard will likely have a material impact on our consolidated financial statements.
We expect the most significant effect upon adoption of ASU 2014-09 (as amended) will likely be related to 1) the accounting for our customer loyalty program (no longer will be recorded at cost, and a deferred revenue model will likely be used to account for the classification and timing of revenue recognized, as well as the classification of related expenses for loyalty point redemptions) and 2) the elimination of promotional allowances (the presentation of goods and services provided to our customers without charge,
included in gross revenue with a corresponding reduction in income tax expensepromotional allowances, will no longer be reported as revenue and will be recognized based on relative standalone selling prices for transactions with more than one performance obligation). As a result, we expect that our liability associated with the customer loyalty program will increase, and our gaming revenues will be significantly reduced as the goods and services provided to customers without charge that currently are included in both gross revenues and promotional allowances will be presented on a net basis, with the majority of $0.1 millionthe impact resulting in a decrease in casino revenues. The quantitative effects of these changes have not yet been fully determined and $0.8 million for the three and nine months ended September 30, 2016, respectively. There were no excess tax benefits for the three and nine months ended September 30, 2015.are still being analyzed.
In February 2016, the FASB issued ASU No. 2016-02 which addresses the recognition and measurement of leases. Under the new guidance, for all leases (with the exception of short-term leases), at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Further, the new lease guidance simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and liabilities, which no longer provides a source for off balance sheet financing. The effective date for this update is for the annual and interim periods beginning after December 15, 2018 with early adoption permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the impact of adopting this accounting standard on our consolidated financial statements.
In September 2015,Currently, we do not have any material capital leases nor any material operating leases where we are the FASB issuedlessor. Our operating leases, primarily relating to certain ground leases and slot machines or VLTs, will be recorded on the balance sheet as an ROU asset with a corresponding lease liability, which will be amortized using the effective interest rate method as payments are made. The ROU asset will be depreciated on a straight-line basis and recognized as lease expense. The qualitative and quantitative effects of adoption of ASU 2015-16, Business Combinations (Topic 805): Simplifying2016-02 are still being analyzed, and we are in the Accounting for Measurement-Period Adjustments. This ASU eliminatesprocess of evaluating the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirerfull effect the new guidance will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. The guidance is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after December 15, 2016. We have adopted this guidance, and it had no impact on our consolidated financial statements forincluding any new considerations with respect to the three and nine months ended September 30, 2016.Isle Acquisition.
In January 2015, the FASB issued ASU No. 2015‑1, “Income Statement—Extraordinary and Unusual Items” (Subtopic 225‑20) which eliminates the concept of accounting of Extraordinary Items, previously defined as items that are both unusual and infrequent, which were reported as a separate item on the income statement, net of tax, after income from continuing operations. The elimination of this concept is intended to simplify accounting for unusual items and more closely align with international accounting practices. This amendment is effective for annual periods beginning after December 15, 2015 and for subsequent interim and annual periods thereafter. Early adoption is permitted. We believe that the effects, if any, of the adoption of this guidance will not have a material impact on our consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014‑15, “Presentation of Financial Statements—Going Concern” (Subtopic 205‑40) which amends the current guidance in ASC Topic 205 by adding Subtopic 40. Subtopic 40 requires management to evaluate whether there are conditions or events that in aggregate would raise substantial doubt about an entity’s ability to continue as a going concern for one year from the date the financial statements are issued or available to be issued. If substantial doubt existed, management would be required to make certain disclosures related to nature of the substantial doubt and under certain circumstances, how that substantial doubt would be mitigated. This amendment is effective for annual periods ending after December 15, 2016 and for subsequent interim and annual periods thereafter. Early adoption is permitted. We will complete our evaluation during the fourth quarter ending December 31, 2016; however, we currently do not anticipate adoption of this guidance to have a material impact on our consolidated financial statements.
Note 2. RenoIsle Acquisition and FinalPreliminary Purchase Price Accounting
On November 24, 2015,May 1, 2017, the Company acquired allcompleted its acquisition of the assets and properties of Circus Reno and the 50% membership interest in the Silver Legacy Joint Venture owned by Galleon, Inc. As of June 30, 2016, the Company
9
finalized its accounting related to the Circus Reno/Silver Legacy Purchase. Isle. The total purchase consideration was $223.6 million as presented in the following table.Isle Merger was determined with reference to the fair value on the date of the Merger Agreement as follows:
|
|
|
|
|
|
|
|
|
|
Purchase consideration calculation (dollars in thousands) |
| Silver Legacy |
| Circus Reno |
| Total | |||
Cash consideration paid by ERI for MGM’s 50% equity interest and MGM’s member note |
| $ | 56,500 |
| $ | 16,000 |
| $ | 72,500 |
Fair value of ERI’s preexisting 50% equity interest |
|
| 56,500 |
|
| — |
|
| 56,500 |
Settlement of Silver Legacy’s long-term debt (1) |
|
| 87,854 |
|
| — |
|
| 87,854 |
Prepayment penalty(1) |
|
| 1,831 |
|
| — |
|
| 1,831 |
Closing Silver Legacy and Circus Reno net working capital (2) |
|
| 6,124 |
|
| 2,111 |
|
| 8,235 |
Reverse member note(3) |
|
| (6,107) |
|
| — |
|
| (6,107) |
Deferred tax liability |
|
| 2,769 |
|
| — |
|
| 2,769 |
Purchase consideration |
| $ | 205,471 |
| $ | 18,111 |
| $ | 223,582 |
Purchase consideration calculation (dollars in thousands, except shares and stock price) |
| Shares |
|
| Per share |
|
|
|
| ||||||
Cash paid for outstanding Isle common stock (1) |
|
|
|
|
|
|
|
|
|
|
| $ |
| 552,050 |
|
Shares of ERI common stock issued for Isle common stock (2) |
|
|
| 28,468,182 |
|
| $ |
| 19.12 |
|
|
|
| 544,312 |
|
Cash paid by ERI to retire Isle's long-term debt (3) |
|
|
|
|
|
|
|
|
|
|
|
|
| 828,000 |
|
Shares of ERI common stock for Isle equity awards (4) |
|
|
|
|
|
|
|
|
|
|
|
|
| 10,383 |
|
Purchase consideration |
|
|
|
|
|
|
|
|
|
|
| $ |
| 1,934,745 |
|
(3) |
|
(4) | This amount represents consideration paid for the replacement of Isle’s outstanding equity awards. As discussed in Note 1, Isle’s outstanding equity awards were replaced by ERI equity awards with similar terms. A portion of the fair value of ERI awards issued represents consideration transferred, while a portion represents compensation expense based on the vesting terms of the equity awards. |
The transaction was accounted for using the acquisition method. No goodwill resulted from the recording of this transaction.
FinalPreliminary Purchase Price Allocation – Silver Legacy and Circus RenoAccounting
The following table summarizes the allocationpreliminary accounting of the finalestimated purchase consideration to the identifiable assets acquired and liabilities assumed in the Circus Reno/Silver Legacy Purchase.Isle Acquisition as of the Isle Acquisition Date, with the excess recorded as goodwill. The fair values were based on management’s analysis, including preliminary work performed by third‑partythird-party valuation specialists. The following table summarizes the finalpreliminary purchase price allocationaccounting of the acquired assets and assumed liabilities as of September 30, 2017 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
| Silver Legacy |
| Circus Reno |
| Total | |||
Current and other assets, net |
| $ | 21,625 |
| $ | 2,115 |
| $ | 23,740 |
Property and equipment |
|
| 168,037 |
|
| 14,996 |
|
| 183,033 |
Intangible assets(1) |
|
| 5,000 |
|
| 1,000 |
|
| 6,000 |
Other noncurrent assets |
|
| 10,809 |
|
| — |
|
| 10,809 |
Net assets acquired |
| $ | 205,471 |
| $ | 18,111 |
| $ | 223,582 |
|
|
|
|
|
|
|
|
|
|
Current and other assets, net |
| $ | 134,143 | ||
Property and equipment | 853,331 | ||||
Goodwill | 679,656 | ||||
Intangible assets (i) | 470,811 | ||||
Other noncurrent assets | 11,025 | ||||
Assets held for sale | 143,592 | ||||
Total assets | 2,292,558 | ||||
Current liabilities | (138,475 | ) | |||
Deferred income taxes (ii) | (187,127 | ) | |||
Other noncurrent liabilities | (26,762 | ) | |||
Liabilities related to assets held for sale | (5,449 | ) | |||
Total liabilities | (357,813 | ) | |||
Net assets acquired | $ | 1,934,745 |
(i) | Intangible assets consist of gaming licenses, trade names, |
(ii) | Deferred tax liabilities were derived based on fair value adjustments for property and equipment and identified intangibles. |
During the three months ended June 30, 2016, the Company finalized its valuation proceduresValuation methodologies under both a market and adjusted the preliminary purchase price allocations, as disclosed in the March 31, 2016 Form 10-Q and December 31, 2015 Form 10-K, to their updated values. The finalized purchase price allocations resulted in a $1.3 million decrease in property and equipment. This change related to management refining certain assumptions used in the valuation of property and equipment to its fair value. Accordingly, the Company adjusted depreciation expense from the Reno Acquisition Date through June 30, 2016, based on the revised measurement of property and equipment. The depreciation expense adjustment was not material.
Valuation methodsincome approach used for the identifiable net assets acquired in the RenoIsle Acquisition make use of Level 1 and Level 3 inputs including quoted prices in active markets and discounted cash flows using current interest rates.rates and are provisional pending development of a final valuation.
Trade receivables and payables, inventory and other current and noncurrent assets and liabilities were valued at the existing carrying values as they represented the estimated fair value of those items at the RenoIsle Acquisition Date, based on management’s judgmentsjudgement and estimates.
10
The fair value estimate of property and equipment utilized a combination of the cost and market approaches, depending on the characteristics of the asset classification. The fair value of land was determined using the market approach, which considers salesarrives at an indication of comparable assets and applies compensating factorsvalue 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, specific to the particular assets. With respect to personal property components ofextent known, between the assets (gaming equipment, furniture, fixturesidentified comparable sites and equipment, computers, and vehicles) the cost approach was used, which is based on replacement or reproduction costs of the asset.site being valued. Building and site improvements were valued using the cost approach using a direct cost model built on estimates of replacement cost.
Trade names With respect to personal property components of the assets, personal property assets with an active and identifiable secondary market such as riverboats, gaming equipment, computer equipment and vehicles were valued using the relief‑from‑royalty method. The loyalty program wasmarket 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 comparativeproperty and subtracting any depreciation resulting from one or more of the following factors: physical deterioration, functional obsolescence, and/or economic obsolescence. The income approach incorporates all tangible and intangible property and served as a ceiling for the fair values of the acquired assets of the ongoing business enterprise, while still taking into account the premise of highest and best use. In the instance where the business enterprise value developed via the income approach was exceeded by the initial fair values of the underlying assets, an adjustment to reflect economic obsolescence was made to the tangible assets on a pro rata basis to reflect the contributory value of each individual asset to the enterprise as a whole.
The fair value of the gaming licenses was determined using the excess earnings or replacement cost methodology based on the respective states’ legislation. The excess earnings methodology, which is an income approach methodology that allocates the projected cash flows of the business to the gaming license intangible assets less charges for the use of other identifiable assets of Isle including working capital, fixed assets and other intangible assets. This methodology was considered appropriate as the gaming licenses are the primary asset of Isle and the licenses are linked to each respective facility. Under the respective state’s gaming legislation, the property specific licenses can only be acquired if a theoretical buyer were to acquire each existing facility. The existing licenses could not be acquired and used for a different facility. The properties’ estimated future cash flows were the primary assumption in the respective valuations. Cash flow estimates included net gaming revenue, gaming operating expenses, general and administrative expenses, and tax expense. The replacement cost methodology is a cost approach methodology based on replacement or reproduction cost of the gaming license as an indicator of fair value.
Trademarks are valued using the relief from royalty method, which presumes that without ownership of such trademarks, ERI would have to make a stream of payments to a brand or franchise owner in return for the right to use their name. By virtue of this asset, ERI avoids any such payments and record the related intangible value of ERI’s ownership of the brand name. The primary assumptions in the valuation method. Managementincluded revenue, pre-tax royalty rate, and tax expense.
ERI has preliminarily assigned trade names an indefinite useful life to the gaming licenses, in accordance with its review of the applicable guidance of ASC Topic No. 350, Intangibles—Goodwill“Intangibles-Goodwill and OtherOther” (“ASC 350”). The standard required managementERI to consider, among other things, the expected use of the asset, the expected useful life of other related asset or asset group, any legal, regulatory, or contractual provisions that may limit the useful life, the Company’sERI’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, managementERI determined that no legal, regulatory, contractual, competitive, economic or other factors limit the useful lives of these intangible assets. The loyalty program is being amortizedacquired Isle properties currently have licenses in Pennsylvania, Iowa, Missouri, Mississippi, Florida and Colorado. The renewal of each state’s gaming license depends on a straight‑line basis over a one yearnumber of factors, including payment of certain fees and taxes, providing certain information to the state’s gaming regulator, and meeting certain inspection requirements. However, ERI’s historical experience has not indicated, nor does ERI expect, any limitations regarding its ability to continue to renew each license. No other competitive, contractual, or economic factor limits the useful life.lives of these assets. Accordingly, ERI has preliminarily concluded that the useful lives of these licenses are indefinite.
For the period from the Isle Acquisition Date through September 30, 2017, Isle generated net revenue of $335.3 million and net income of $30.7 million.
Unaudited Pro Forma Information
The following unaudited pro forma information presents the results of operations of the Company for the three and nine months ended September 30, 2015,2017 and 2016, which give effect to the Isle Acquisition, the Lake Charles Disposition, and Isle’s sale of the Lady Luck Casino Marquette, which closed on March 13, 2017, as if the Reno Acquisitioneach of such transactions had occurred on January 1, 20152016 (in thousands except per share data).thousands):
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| ||
|
| September 30, 2015 |
| September 30, 2015 |
| ||
Net revenues |
| $ | 242,993 |
| $ | 687,126 |
|
Net income |
|
| 9,896 |
|
| 11,773 |
|
Net income per common share: |
|
|
|
|
|
|
|
Basic |
| $ | 0.21 |
| $ | 0.25 |
|
Diluted |
| $ | 0.21 |
| $ | 0.25 |
|
Weighted shares outstanding: |
|
|
|
|
|
|
|
Basic |
|
| 46,550,042 |
|
| 46,550,042 |
|
Diluted |
|
| 46,865,603 |
|
| 47,007,451 |
|
|
| Nine Months Ended |
| |||||||
|
| September 30, 2017 |
|
| September 30, 2016 |
| ||||
Net revenues |
| $ |
| 1,291,998 |
|
| $ |
| 1,317,185 |
|
Net income from continuing operations |
|
|
| 77,918 |
|
|
|
| 22,097 |
|
Net income |
|
|
| 84,310 |
|
|
|
| 28,645 |
|
These pro forma results do not necessarily represent the results of operations that would have been achieved if the RenoIsle Acquisition had taken place on January 1, 2015,2016, nor are they indicative of the results of operations for future periods. The pro forma amounts include the historical operating results of the Company the Silver Legacy and Circus RenoIsle prior to the RenoIsle Acquisition, with adjustments factually supportable and directly attributable to the RenoIsle Acquisition.
Note 3. InvestmentDiscontinued Operations
On August 22, 2016, Isle entered into a definitive agreement to sell its casino and hotel property in Unconsolidated Affiliates
Hotel Partnership.Lake Charles, Louisiana, for $134.5 million, subject to a customary purchase price adjustment, to an affiliate of Laguna Development Corporation, a Pueblo of a Laguna-owned business based in Albuquerque, New Mexico. The Company holds a 42.1% variable interest in a partnership withtransaction remains subject to Louisiana Gaming Control Board approval and other investors to develop a new 118-room Hampton Inn & Suites hotelcustomary closing conditions and, if obtained, the transaction is expected to be developed at Scioto Downs. Pursuantcompleted by December 31, 2017. Isle received a $20.0 million deposit related to the terms of the partnership agreement, the Company contributed $1.0 million ofthis transaction, which is reflected in restricted cash and 2.4 acres of a leasehold immediately adjacent to The Brew Brothers microbrewery and restaurant at Scioto Downs. The partnership will be responsible for the construction of the hotel at an estimated cost of $15.0 million and other investor members have been identified to operate the hotel upon completion. The Company is not the primary beneficiary, and therefore, the entity is accounted for under the equity method of accounting. At September 30, 2016, the Company’s investment in the partnership was $1.3 million, classified as “Investment in and advances to unconsolidated affiliates”within current assets in the consolidated balance sheets, representingsheet as of September 30, 2017.
As of the Company’s maximum exposure to loss.
Silver Legacy Joint Venture. Effective March 1, 1994, ELLC and Galleon entered into the Silver Legacy Joint Venture pursuant to a joint venture agreement to develop the Silver Legacy. The Silver Legacy consists of a casino and hotel located in Reno, Nevada, which began operations on July 28, 1995. Prior to the RenoIsle Acquisition Date, each partner owned a 50% interest inLake Charles met the Silver Legacy Joint Venture. Also prior torequirements for presentation as assets held for sale and discontinued operation under generally accepted accounting principles. Accordingly, the Reno Acquisition Date, Resorts
operations of Lake Charles have been classified as discontinued operations and as assets held for sale for all periods presented.
11
TableThe results of Contents
owned a 48.1% interest in the Silver Legacy Joint Venture by means of its 96.2% ownership of ELLC, which owned a 50% interest in the Silver Legacy Joint Venture.
On the Reno Acquisition Date, Resorts consummated the Reno Acquisition of the other 50% membership interest in the Silver Legacy Joint Venture owned by Galleon, Inc. pursuant to the Purchase Agreement and also exercised its right to acquire the 3.8% interest in ELLC held by certain affiliates of the Company. As a result of these transactions, ELLC became a wholly-owned subsidiary of ERI and Silver Legacy became an indirect wholly‑owned subsidiary of ERI. In conjunction with the Reno Acquisition, we recorded a $35.6 million gain related to the valuation of our pre-acquisition investment in the Silver Legacy Joint Venture.
As consideration for the noncontrolling interest, the Company issued 373,135 shares of common stock. Subsequent to this action, the Company owned 100% of ELLC. The Company valued the shares at the market price on the day the shares were issued to the noncontrolling interest holders. The value of the total consideration paid was $3.6 million.
On December 16, 2013, the Silver Legacy Joint Venture entered into a new senior secured term loan facility totaling $90.5 million (the “New Silver Legacy Credit Facility”) to refinance its indebtedness under its then existing senior secured term loan and Silver Legacy Second Lien Notes. The New Silver Legacy Credit Facility was scheduled to mature on November 16, 2017, which was the maturity date of the original Silver Legacy credit facility. In connection with the Circus Reno/Silver Legacy Purchase, all amounts outstanding under the New Silver Legacy Credit Facility were paid in full and the cash collateral securing such obligations were released.
Equity in income related to the Silver Legacy Joint Venture for the three and nine months ended September 30, 2015 was $2.5 million and $3.1 million, respectively.discontinued operations are summarized as follows (in thousands):
|
| Discontinued Operations |
| |||||||
|
| Three Months Ended |
|
| May 1 - September 30, |
| ||||
|
| September 30, 2017 |
|
| 2017 |
| ||||
Net revenues |
| $ |
| 25,871 |
|
| $ |
| 44,306 |
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income from discontinued operations |
| $ |
| 2,388 |
|
| $ |
| 3,927 |
|
Income tax provision from discontinued operations |
|
|
| (950 | ) |
|
|
| (1,534 | ) |
Income from discontinued operations |
| $ |
| 1,438 |
|
| $ |
| 2,393 |
|
Summarized results of operations
The assets and liabilities held for the Silver Legacy Joint Venture in 2015 prior to the Reno Acquisitionsale were as follows (in thousands):
|
|
|
|
|
|
|
|
|
| Three months ended |
| Nine months ended |
| ||
|
| September 30, 2015 |
| September 30, 2015 |
| ||
|
| (unaudited) |
| ||||
Net revenues |
| $ | 38,028 |
| $ | 97,665 |
|
Operating expenses |
|
| (29,953) |
|
| (82,850) |
|
Operating income |
|
| 8,075 |
|
| 14,815 |
|
Other expense |
|
| (2,801) |
|
| (8,319) |
|
Net income |
| $ | 5,274 |
| $ | 6,496 |
|
| September 30, | ||||
2017 | |||||
Assets: | |||||
Accounts receivable, net | $ | 632 | |||
Inventories | 452 | ||||
Prepaid expenses and other | 833 | ||||
Property and equipment, net | 59,347 | ||||
Goodwill | 36,353 | ||||
Gaming licenses and other intangibles, net | 45,659 | ||||
Other assets, net | 220 | ||||
Assets held for sale | $ | 143,496 | |||
Liabilities: | |||||
Accounts payable | $ | 1,960 | |||
Accrued payroll and related | 1,639 | ||||
Accrued property, gaming and other taxes | 1,181 | ||||
Accrued other liabilities | 2,010 | ||||
Liabilities related to assets held for sale | $ | 6,790 |
Note 4. Stock-Based Compensation
The Company has authorized common stock of 100,000,000 shares, par value $0.00001 per share.
The Company accounts for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation. Total stock-based compensation expense recognized was $0.7 million and $0.3 million for the three months ended September 30, 2016 and 2015, respectively, and $2.7 million and $1.2 million for the nine months ended September 30, 2016 and 2015, respectively. These amounts are included in corporate expenses in the Company’s consolidated statements of operations.
The Board of Directors (“BOD”) adopted the Eldorado Resorts, Inc. 2015 Equity Incentive Plan (“2015 Plan”) on January 23, 2015 and our shareholders subsequently approved the adoption of the 2015 Plan on June 23, 2015. The Plan permits the granting of stock options, including incentive stock options (“ERI Stock Options”), stock appreciation rights, (“SARs”), restricted stock or restricted stock units (“RSUs”), performance awards, and other stock-based awards and dividend equivalents. ERI Stock Options primarily vest ratably over three years and RSUs granted to employees and executive officers primarily vest and become non-forfeitable upon the third anniversary of the date of grant. RSUs granted to non-employee directors vest immediately and are delivered upon the date that is the earlier of termination of service on the BOD or the consummation of a change of control of the Company. The performance awards relate to the achievement of defined levels of performance and are generally measured over a one or two-year performance period depending upon the award agreement. If the performance award levels are achieved, the awards earned will vest and
12
become payable at the end of the vesting period, defined as either a one or two calendar year period following the performance period. Payout ranges are from 0% up to 200% of the award target.
On January 22, 2016,Pursuant to the Company granted 367,519 RSUsMerger Agreement, the outstanding equity awards of Isle were converted into comparable equity awards of ERI stock as follows:
Isle stock options. Each option or other right to executive officers and key employees, and 34,920 RSUsacquire Isle common stock (each an “Isle Stock Option”) that was outstanding immediately prior to non-employee membersthe Isle Acquisition Date (whether vested or unvested), as of the BODIsle Acquisition Date, (i) continued to vest or accelerate (if unvested), as the case may be, in accordance with the applicable Isle stock plan, the award agreement pursuant to which such Isle Stock Option was granted and, if applicable, any other relevant agreements (such as an employment agreement), (ii) ceased to represent an option or right to acquire shares of Isle common stock, and (iii) was converted into an option or right to purchase that number of shares ERI common stock equal to the number of shares of Isle common stock subject to the Isle Stock Option multiplied by the Stock Consideration at an exercise price equal to the exercise price of the Isle Stock Option divided by the Stock Consideration,
subject to the same restrictions and other terms as are set forth in the Isle equity incentive plan, the award agreement pursuant to which such Isle Stock Option was granted and, if applicable, any other relevant agreements (such as an employment agreement).
Isle restricted stock awards. Each share of Isle common stock subject to vesting, repurchase or lapse restrictions (each an “Isle Restricted Share”) that was outstanding under any Isle equity plan or otherwise immediately prior to the Isle Acquisition Date, as of the Isle Acquisition Date, continued to vest or accelerate (if unvested), as the case may be, in accordance with the applicable Isle stock plan, the award agreement pursuant to which such Isle Restricted Share was granted, and, if applicable, any other relevant agreements (such as an employment agreement) and was exchanged for shares of ERI common stock (in an amount equal to the Stock Consideration, with aggregated fractional shares rounded to the nearest whole share) and remain subject to the same restrictions and other terms as are set forth in the Isle stock plan, the award agreement pursuant to which such Isle Restricted Share was granted, and, if applicable, any other relevant agreements (such as an employment agreement).
Isle performance stock units. Each performance stock unit (each, an “Isle PSU”) that was outstanding immediately prior to the Isle Acquisition Date, as of the Isle Acquisition Date, (i) continued to vest or accelerate (if unvested), as the case may be, in accordance with the applicable Isle stock plan, the award agreement pursuant to which such Isle PSU was granted, and, if applicable, any other relevant agreements (such as an employment agreement), (ii) was converted into a number of performance stock units in respect of shares of ERI common stock, in an amount equal to the Stock Consideration (with aggregated fractional shares rounded to the nearest whole share) at the target level of performance, and (iii) remain subject to the same restrictions and other terms as are set forth in the Isle stock plan, the award agreement pursuant to which such Isle PSU was granted, and, if applicable, any other relevant agreements (such as an employment agreement).
Isle restricted stock units. Each restricted stock unit, deferred stock unit or phantom unit in respect of a share of Isle common stock granted under the 2015 Plan. applicable Isle stock plan or otherwise, including any such units held in participant accounts under any employee benefit or compensation plan or arrangement of Isle, other than an Isle PSU (each an “Isle RSU”) that was outstanding immediately prior to the Isle Acquisition Date, as of the Isle Acquisition Date, (i) continued to vest or accelerate (if unvested), as the case may be, in accordance with the applicable Isle stock plan, the award agreement pursuant to which such Isle RSU was granted, and, if applicable, any other relevant agreements (such as an employment agreement or applicable employee benefit plan), (ii) was converted into a number of restricted stock units, deferred stock units or phantom units, as applicable, in respect of shares of ERI common stock, in an amount equal to the Stock Consideration (with aggregated fractional shares rounded to the nearest whole share), and (iii) remain subject to the same restrictions and other terms as are set forth in the Isle stock plan, the award agreement pursuant to which such Isle RSU was granted, and, if applicable, any other relevant agreements (such as an employment agreement or applicable employee benefit plan).
The RSUs had a fair value of $10.77 per unit whichCompany accounts for stock-based compensation in accordance with ASC Topic 718, “Compensation—Stock Compensation” (“ASC 718”). Total stock-based compensation expense from continuing operations was $1.4 million and $0.7 million for the NASDAQ closing price on that date. An additional 9,794 RSUs were also granted to key employees during the ninethree months ended September 30, 2016.
A summary of the RSU activity2017 and 2016, respectively, and $4.5 million and $2.7 million for the nine months ended September 30, 2017 and 2016, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted-Average |
| Weighted-Average |
|
|
|
| |
|
| Equity |
| Grant Date |
| Remaining |
| Aggregate |
| ||
|
| Awards |
| Fair Value |
| Contractual Life |
| Fair Value |
| ||
|
|
|
|
|
|
| (in years) |
|
| (in millions) |
|
Unvested outstanding as of December 31, 2015 |
| 827,383 | (1) | $ | 4.09 |
| 2.12 |
| $ | 3.4 |
|
Granted |
| 412,233 | (2) |
| 10.81 |
|
|
|
|
|
|
Vested |
| (245,934) |
|
| 5.63 |
|
|
|
|
|
|
Unvested outstanding as of September 30, 2016 |
| 993,682 |
| $ | 6.49 |
| 1.67 |
| $ | 6.5 |
|
|
|
|
|
As of September 30, 2016, the Company had approximately $3.0 million of unrecognized compensation expense related to unvested RSUs that is expected to be recognized over a weighted-average period of approximately 1.67 years.
respectively. In the first quarter of 2016, the Company’s chief operating officer terminated employment and the chief financial officer retired. In conjunction with the termination and retirement, unvested RSUs totaling 167,511, which were outstanding as of December 31, 2015, immediately vested representing an additional $0.5 million included in stock compensation expense during the first quarter of 2016. Additionally, severance costs totaling $1.4 million were recognized in the first quarter of 2016.
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 operations. We recognized a reduction in income tax expense of $0.2 million and $0.1 million for the three months ended September 30, 2017 and 2016, respectively, and $0.8 million for both the nine months ended September 30, 2017 and 2016, respectively, for excess tax benefits related to stock-based compensation.
On September 19, 2014, as a resultJanuary 27, 2017, the Company granted 298,761 RSUs to executive officers and key employees, and 46,282 RSUs to non-employee members of the Merger, all outstanding MTR Gaming stock options (“MTR Stock Options”) vested (toBOD under the extent not already vested) and converted into an option or right2015 Plan. The RSUs had a fair value of $15.50 per unit which was the NASDAQ closing price on that date. An additional 42,161 RSUs were also granted to purchasekey employees during the same numbernine months ended September 30, 2017.
A summary of sharesthe RSU activity for the nine months ended September 30, 2017 is as follows:
|
|
|
|
|
| Weighted- |
|
| Weighted- |
|
|
|
|
| ||
|
|
|
|
|
| Average |
|
| Average |
|
|
|
|
| ||
|
| Equity |
|
| Grant Date |
|
| Remaining |
|
| Aggregate |
| ||||
|
| Awards |
|
| Fair Value |
|
| Contractual Life |
|
| Fair Value |
| ||||
|
|
|
|
|
|
|
|
|
| (in years) |
|
| (in millions) |
| ||
Unvested outstanding as of December 31, 2016 |
|
| 982,370 |
|
| $ | 6.45 |
|
|
| 1.41 |
|
| $ | 6.3 |
|
Granted (1) |
|
| 387,204 |
|
|
| 15.95 |
|
|
|
|
|
|
|
|
|
Exchanged (2) |
|
| 860,557 |
|
|
| 18.94 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (11,870 | ) |
|
| 15.74 |
|
|
|
|
|
|
|
|
|
Vested |
|
| (851,764 | ) |
|
| 18.37 |
|
|
|
|
|
|
|
|
|
Unvested outstanding as of September 30, 2017 |
|
| 1,366,497 |
|
| $ | 9.49 |
|
|
| 1.06 |
|
| $ | 13.0 |
|
��
(1) | Includes 100,829 of performance awards at 100% of target and 286,375 time-based awards at 100% of target. |
(2) | Represents exchanged Isle RSUs as a result of the Isle Acquisition based on the average of the ERI share price on the grant dates. |
As of ERI common stock (atSeptember 30, 2017, the same exercise price per share as in effect priorCompany had approximately $6.4 million of unrecognized compensation expense related to such conversion). All other terms, except vesting requirements, applicableunvested RSUs that is expected to such stock options remain the same.be recognized over a weighted-average period of approximately 1.06 years.
A summary of the ERI Stock Option activity for the nine months ended September 30, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted- |
|
|
|
|
| |||
|
|
|
|
|
| Range of |
|
| Weighted- Average |
|
| Average Remaining |
|
| Aggregate |
| ||||||||
|
| Options |
|
| Exercise Prices |
|
| Exercise Price |
|
| Contractual Life |
|
| Intrinsic Value |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in years) |
|
| (in millions) |
| ||
Outstanding as of December 31, 2016 |
|
| 169,300 |
|
| $ | 2.44 |
|
| $ | 16.27 |
|
| $ | 9.94 |
|
|
| 0.86 |
|
| $ | 1.2 |
|
Exchanged (1) |
|
| 1,351,168 |
|
|
| 6.87 |
|
|
| 15.60 |
|
|
| 10.12 |
|
|
|
|
|
|
|
|
|
Expired |
|
| (51,700 | ) |
|
| 2.44 |
|
|
| 3.94 |
|
|
| 2.97 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (1,095,660 | ) |
|
| 6.87 |
|
|
| 16.27 |
|
|
| 10.03 |
|
|
|
|
|
|
|
|
|
Outstanding as of September 30, 2017 |
|
| 373,108 |
|
| $ | 3.94 |
|
| $ | 15.60 |
|
| $ | 11.15 |
|
|
| 1.10 |
|
| $ | 5.4 |
|
(1) | Represents exchanged Isle Stock Options as a result of the Isle Acquisition. |
As a result of the Isle Acquisition, we exchanged 1,351,168 non-qualified stock options, which have a maximum term of ten years ended December 31, 2014from the grant date and 2015 andare exercisable in yearly installments of 20% commencing one year after the grant date. The options have a weighted average per share Isle Acquisition Date fair value of $9.90 utilizing the Black-Scholes-Merton option pricing model with the range of assumptions disclosed in the following table:
Weighted average expected volatility | 40.0 | % | ||
Expected dividend yield | 0.0 | % | ||
Weighted average expected term (in years) | 0.66 | |||
Weighted average risk-free interest rate | 1.08 | % |
Weighted average volatility is calculated using the historical volatility of our stock price over a range of dates equal to the expected term of the grant’s options. The weighted average expected term is calculated using historical data that is representative of the option for which the fair value is to be determined. The expected term represents the period of time that options granted are expected to be outstanding. The weighted average risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant for the approximate period of time equivalent to the grant’s expected term. The Company’s unrecognized compensation cost for unvested options was $0.3 million as of September 30, 2017.
A summary of the ERI Restricted Stock Awards activity for the nine months ended September 30, 20162017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted-Average |
|
|
|
| ||
|
|
|
| Range of |
| Weighted-Average |
| Remaining |
| Aggregate |
| |||||
|
| Options |
| Exercise Prices |
| Exercise Price |
| Contractual Life |
| Intrinsic Value |
| |||||
|
|
|
|
|
|
|
|
|
|
| (in years) |
| (in millions) |
| ||
Outstanding and Exercisable as of December 31, 2014 |
| 398,200 |
| $ 2.44 | - | $16.27 |
| $ | 7.88 |
|
| 4.54 |
| $ | 0.2 |
|
Expired |
| (86,000) |
|
|
| $11.30 |
| $ | 11.30 |
|
|
|
|
|
|
|
Outstanding and Exercisable as of December 31, 2015 |
| 312,200 |
| $ 2.44 | - | $16.27 |
| $ | 6.94 |
|
| 3.47 |
| $ | 1.3 |
|
Exercised |
| (132,900) |
| $ 2.44 | - | $3.94 |
| $ | 2.89 |
|
|
|
|
|
|
|
Outstanding and Exercisable as of September 30, 2016 |
| 179,300 |
| $ 2.44 | - | $16.27 |
| $ | 9.94 |
|
| 2.72 |
| $ | 0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted- |
|
| Weighted- |
|
|
|
|
| ||
|
|
|
|
|
| Average |
|
| Average |
|
|
|
|
| ||
|
|
|
|
|
| Grant Date |
|
| Remaining |
|
| Aggregate |
| |||
|
| Restricted Stock |
|
| Fair Value |
|
| Contractual Life |
|
| Fair Value |
| ||||
|
|
|
|
|
|
|
|
|
| (in years) |
|
| (in millions) |
| ||
Outstanding as of December 31, 2016 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
Exchanged (1) |
|
| 180,374 |
|
|
| 19.23 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (1,602 | ) |
|
| 19.13 |
|
|
|
|
|
|
|
|
|
Vested |
|
| (167,963 | ) |
|
| 19.24 |
|
|
|
|
|
|
|
|
|
Outstanding as of September 30, 2017 |
|
| 10,809 |
|
| $ | 19.13 |
|
|
| 0.70 |
|
| $ | 0.1 |
|
(1) | Represents exchanged Isle Restricted Stock Awards as a result of the Isle Acquisition. |
The Company’s unrecognized compensation cost for unvested restricted stock awards was $0.1 million as of September 30, 2017
13
Note 5. Goodwill,Other and Intangible Assets, Non-Operating Real Property and Other, net
Goodwill,Other and intangible assets, non-operating real property and other, net, consisted ofinclude the following amounts (in thousands):
|
|
|
|
|
|
|
| ||||||||||||
|
| September 30, |
| December 31, |
|
| September 30, |
|
| December 31, |
|
|
| ||||||
|
| 2016 |
| 2015 |
|
| 2017 |
|
| 2016 |
|
| Useful Life | ||||||
|
| (unaudited) |
|
|
|
|
| (unaudited) |
|
|
|
|
|
|
|
| |||
Goodwill |
| $ | 66,826 |
| $ | 66,826 |
|
| $ |
| 746,482 |
|
| $ |
| 66,826 |
|
| Indefinite |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Gaming license (indefinite-lived) |
| $ | 482,074 |
| $ | 482,074 |
| ||||||||||||
Gaming licenses |
| $ |
| 846,374 |
|
| $ |
| 482,074 |
|
| Indefinite | |||||||
Trade names |
|
| 95,850 |
|
|
| 3,100 |
|
| Indefinite | |||||||||
Trade names |
|
| 9,800 |
|
| 9,800 |
|
|
| 6,700 |
|
|
| 6,700 |
|
| 1 - 3.5 years | ||
Loyalty programs |
|
| 7,700 |
|
| 7,700 |
|
|
|
| 21,461 |
|
|
|
| 7,700 |
|
| 1 - 3 years |
Subtotal |
|
| 499,574 |
|
| 499,574 |
|
|
|
| 970,385 |
|
|
|
| 499,574 |
|
|
|
Accumulated amortization trade names |
|
| (3,897) |
|
| (2,462) |
|
|
| (5,811 | ) |
|
| (4,376 | ) |
|
| ||
Accumulated amortization loyalty programs |
|
| (7,256) |
|
| (5,079) |
|
|
|
| (9,612 | ) |
|
|
| (7,700 | ) |
|
|
Total gaming licenses and other intangible assets |
| $ | 488,421 |
| $ | 492,033 |
|
| $ |
| 954,962 |
|
| $ |
| 487,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Non-operating real property |
| $ | 14,218 |
| $ | 16,314 |
|
| $ |
| 18,069 |
|
| $ |
| 14,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land held for development |
| $ | 906 |
| $ | 906 |
|
| $ |
| 906 |
|
| $ |
| 906 |
|
|
|
Other |
|
| 5,484 |
|
| 6,048 |
|
|
|
| 17,510 |
|
|
|
| 10,500 |
|
|
|
Total other assets, net |
| $ | 6,390 |
| $ | 6,954 |
|
| $ |
| 18,416 |
|
| $ |
| 11,406 |
|
|
|
Goodwill represents the excess of the purchase priceprices of acquiring MTR Gaming and Isle over the fair market value of the net assets acquired, in the amount of $66.8 million was recorded as of September 30, 2016. For financial reporting purposes, goodwill is not amortized, but is reviewed no less than annually or when events or circumstances indicate the carrying value might exceed the market value to determine if there has been an impairment in the recorded value.acquired.
Included in gamingGaming licenses is the Eldorado Shreveport gaming license recorded at $20.6 million at both September 30, 2016 and December 31, 2015. The license represents anrepresent intangible assetassets 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. Also included in gaming licenses are the gaming and racing licenses of Mountaineer, Presque Isle Downs and Scioto Downs recorded at $461.5 million at both September 30, 2016 and December 31, 2015. Total gaming licenses of $482.1 million reflects the fair value of these licenses calculated as of September 30, 2016 and December 31, 2015, and theseThese gaming license rights are not subject to amortization as the Company has determined that they have an indefinite useful life.lives.
Trade names related to the Merger are amortized on a straight‑line basis over a 3.5 year useful life. Trade names related to the Reno Acquisition are non-amortizable, and loyalty programs are amortized on a straight‑line basis over a one year useful life. Amortization expense with respect to trade names and the loyalty program for the three and nine months ended September 30, 20162017 amounted to $1.7 million and $3.3 million, respectively, and $1.2 million and $3.6 million, respectively, and $1.5 million and $5.0 million for the three and nine months ended September 30, 2015,2016, respectively, which is included in depreciation and amortization expense in the consolidated statements of operations. Such amortization expense is expected to be $0.9$1.6 million for the remainder of 2016, $1.9 million for the year ended December 31, 2017 and $0.4$5.0 million, $4.6 million and $1.5 million for the yearyears ended December 31, 2018.
The Company’s indefinite-lived gaming licenses2018, 2019 and trade names are reviewed no less than annually or when events or circumstances indicate the carrying value might exceed the market value to determine if there has been an impairment in the recorded value.
Non-operating real property totaled $14.2 million at September 30, 2016 and $16.3 million at December 31, 2015. The $2.1 million decrease was primarily due to the Company recording a $2.1 million sale of land (non-operating) at Presque Isle Downs during the three and nine months ended September 30, 2016. This transaction resulted in a $0.1 million gain net of costs.
2020, respectively.
14
Note 6. Income Taxes
Prior to the Merger Date, HoldCo was taxed as a partnership under the Internal Revenue Code pursuant to which income taxes were primarily the responsibility of the partners. On September 19, 2014, in connection with the Merger, the Company became a C corporation subject to federal and state corporate-level income taxes at prevailing corporate tax rates. The Company and its subsidiaries file US federal tax returns and various state and local income tax returns. With few exceptions, the Company is no longer subject to US federal or state and local tax examinations by tax authorities for years before 2013.
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 years prior to 2016, the income tax provision resulted in an effective tax rate that had an unusual relation to pretax income (loss). This was due to the federal and state valuation allowances on deferred tax assets as discussed below.
For the three and nine months ended September 30, 2016, the difference between the effective rate and the statutory rate is attributed primarily to state and local income taxes less the benefit of the early adoption of ASU 2016-09 (Stock Compensation) and tax credits.
For the three and nine months ended September 30, 2015, the difference between the effective rate and the statutory rate is attributed primarily to the federal and state valuation allowances on deferred tax assets. As a result of net operating losses and the net deferred tax asset position (after exclusion of certain deferred tax liabilities that generally cannot be offset against deferred tax assets, known as “Naked Credits”), the Company provided for a full valuation allowance against substantially all of the net federal and state deferred tax assets.
For income tax purposes, the Company amortizes or depreciates certain assets that have been assigned an indefinite life for book purposes. The incremental amortization or depreciation deductions for income tax purposes result in an increase in certain deferred tax liabilities that cannot be used as a source of future taxable income for purposes of measuring the Company's need for a valuation allowance against the net deferred tax assets. Therefore, we expect to record non cashnon-cash deferred tax expense as we amortize these assets for tax purposes.
For the three months ended September 30, 2017, the Company’s tax expense from continuing operations was $11.6 million and for the nine months ended September 30, 2017, the Company’s tax benefit from continuing operations was $27.6 million. For the three and nine months ended September 30, 2016, the Company’s tax expense from continuing operations was $5.8 million and $13.7 million, respectively. For the three and nine months ended September 30, 2017, the difference between the effective rate and the statutory rate is attributed primarily to non-deductible transaction costs incurred and changes in the effective state tax rate associated with the acquisition of Isle of Capri Casinos, Inc., state and local income taxes and the release of the valuation allowance against certain Pennsylvania deferred tax assets. For the three and nine months ended September 30, 2016, the Company’sdifference between the effective rate and the statutory rate is attributed primarily to state and local income taxes less excess tax expense was $5.8 millionbenefits associated with stock compensation and $13.7 million, respectively. For the three and nine months ended September 30, 2015, the Company’s tax expense was $2.4 million and $4.5 million, respectively.credits. As of September 30, 20162017 and 2015,2016, there were no unrecognized tax benefits and the Company does not expect a significant increase or decrease to the total amounts of unrecognized tax benefits within the next twelve months.
In October 2016,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 2009.
The Company was notified by the Internal Revenue Service in October of 2016 that ourits federal tax return for the year ended December 31, 2014 washad been selected for examination. We anticipateIn September 2017, the IRS informed the Company that they completed the examination will commenceof the tax return and made no changes. However, the Company may be subject to audit in late 2016 or early 2017.the future and the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with the Company’s expectations, we would be required to adjust our provision for income taxes in the period such resolution occurs. While the Company believes its reported results are materially accurate, any significant adjustments could have a material adverse effect on the Company’s results of operations, cash flows and financial position.
15
Note 7. Long‑TermLong-Term Debt
Long‑term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
| September 30, |
|
| December 31, |
| ||||
|
| September 30, |
| December 31, |
|
| 2017 |
|
| 2016 |
| ||||||
|
| 2016 |
| 2015 |
|
| (unaudited) |
|
|
|
|
|
| ||||
|
| (unaudited) |
|
|
|
| |||||||||||
Senior Notes |
| $ | 375,000 |
| $ | 375,000 |
| ||||||||||
New Term Loan |
| $ |
| 1,001,875 |
|
| $ |
| — |
| |||||||
Less: Unamortized discount and debt issuance costs |
|
|
| (20,316 | ) |
|
|
| — |
| |||||||
Net |
|
|
| 981,559 |
|
|
|
| — |
| |||||||
6% Senior Notes |
|
|
| 875,000 |
|
|
|
| — |
| |||||||
Plus: Unamortized debt premium |
|
|
| 27,359 |
|
|
|
|
|
| |||||||
Less: Unamortized debt issuance costs |
|
| (8,398) |
|
| (8,957) |
|
|
|
| (21,268 | ) |
|
|
| — |
|
Net |
|
| 366,602 |
|
| 366,043 |
|
|
|
| 881,091 |
|
|
|
| — |
|
|
|
|
|
|
|
|
| ||||||||||
7% Senior Notes |
|
|
| 375,000 |
|
|
|
| 375,000 |
| |||||||
Less: Unamortized discount and debt issuance costs |
|
|
| (7,421 | ) |
|
|
| (8,141 | ) | |||||||
Net |
|
|
| 367,579 |
|
|
|
| 366,859 |
| |||||||
New Revolving Credit Facility |
|
|
| — |
|
|
|
| — |
| |||||||
Less: Unamortized debt issuance costs |
|
|
| (9,118 | ) |
|
|
| — |
| |||||||
Net |
|
|
| (9,118 | ) |
|
|
| — |
| |||||||
Term Loan |
|
| 419,688 |
|
| 422,875 |
|
|
|
| — |
|
|
|
| 418,625 |
|
Less: Unamortized discount and debt issuance costs |
|
| (13,087) |
|
| (14,465) |
|
|
|
| — |
|
|
|
| (12,578 | ) |
Net |
|
| 406,601 |
|
| 408,410 |
|
|
|
| — |
|
|
|
| 406,047 |
|
|
|
|
|
|
|
|
| ||||||||||
Revolving Credit Facility |
|
| 19,000 |
|
| 93,500 |
|
|
|
| — |
|
|
|
| 29,000 |
|
Less: Unamortized debt issuance costs |
|
| (2,165) |
|
| (2,533) |
|
|
|
| — |
|
|
|
| (2,023 | ) |
Net |
|
| 16,835 |
|
| 90,967 |
|
|
|
| — |
|
|
|
| 26,977 |
|
|
|
|
|
|
|
|
| ||||||||||
Capital leases |
|
| 613 |
|
| 817 |
|
|
|
| 1,061 |
|
|
|
| 543 |
|
Long-term notes payable |
|
|
| 2,950 |
|
|
|
| — |
| |||||||
Less: Current portion |
|
| (4,539) |
|
| (4,524) |
|
|
|
| (1,068 | ) |
|
|
| (4,545 | ) |
Total long-term debt |
| $ | 786,112 |
| $ | 861,713 |
|
| $ |
| 2,224,054 |
|
| $ |
| 795,881 |
|
Scheduled maturitiesIn connection with the Isle Acquisition, the Company completed a debt financing transaction comprised of: (a) a senior secured credit facility in an aggregate principal amount of long‑$1.75 billion with a (i) term debt are $22.0loan facility of $1.45 billion and (ii) revolving credit facility of $300.0 million and (b) $375.0 million of 6% senior unsecured notes. The proceeds of such borrowings were used (v) to pay the cash portion of the consideration payable in the Isle Merger, (w) refinance all of Isle’s existing credit facilities, (x) redeem or otherwise repurchase all of Isle’s and senior and senior subordinated notes, (y) refinance the Company’s existing credit facility and (z) pay transaction fees and expenses related to the foregoing.
On September 13, 2017, the Company issued an additional $500.0 million in 2020, $395.3 million in 2022aggregate principal amount of its 6% Senior Notes (as defined below) at an issue price equal to 105.5% of the principal amount. The 6% Senior Notes were issued as additional notes under the New Indenture dated March 29, 2017 (as defined below), as supplemented by the Supplemental Indenture dated as of May 1, 2017 (the “Supplemental Indenture”) between the Company, the guarantors party thereto and U.S. Bank National Association, pursuant to which the Company previously issued $375.0 million in 2023. Debtaggregate principal amount of 6% Senior Notes. The additional 6% Senior Notes formed part of a single class of securities together with the initial 6% Senior Notes for all purposes under the New Indenture, including waivers, amendments, redemptions and offers to purchase.
The Company used the proceeds of the offering to repay all of the outstanding borrowings under the New Revolving Credit Facility (as defined below) totaling $78.0 million and used the remainder to repay outstanding borrowings totaling $444.5 million under the New Term Loan plus related accrued interest.
Amortization of the debt issuance costs and the discount and premium associated with our indebtedness totaled $2.0 million and $5.0 million for the three and nine months ended September 30, 2017, respectively. Amortization of the debt issuance costs and the discount associated with our indebtedness totaled $0.9 million and $2.6 million, respectively, for the issuance of the Senior Notes, Term Loanthree and Revolving Credit Facility (as such terms are defined below) in July 2015 totaled $26.3 million.nine months ended September 30, 2016. Amortization of debt issuance costs is computed using the effective interest method and is included in interest expense. Amortization
In accordance with ASC Topic 470-50, “Debt Modifications and Extinguishments” (“ASC 470-50”), the Company recognized a loss totaling $27.3 million for the nine months ended September 30, 2017 as a result of the debt issuance costs andrefinance of the discount associated with the Senior Notes andPrior Credit Facility (as defined below) totaled $0.9 million and $2.6in May 2017. The Company also recognized a loss totaling $10.0 million for the three andmonths ended September 30, 2017 as a result of the issuance of additional 6% Senior Notes in September 2017 resulting in a combined total loss of $37.3 million for the nine months ended September 30, 2016, respectively,2017.
Scheduled maturities of long‑term debt are $375.0 million in 2023, $1.0 billion in 2024, and $0.7$875.0 million for the three and nine months ended September 30, 2015.in 2025.
In 2015, amortization of Resorts’ bond costs was computed using the straight‑line method, which approximated the effective interest method, over the term of the bonds, and was included in interest expense. Amortization expense with respect to deferred financing costs on Resorts senior secured notes amounted to $0.1 million and $0.5 million for three and nine months ended September 30, 2015, respectively.
We areThe Company is a holding company with no independent assets or operations. Our 6% Senior Notes and 7% Senior Notes are fully and unconditionally guaranteed, on a joint and several basis, by substantially all of our subsidiaries. Any subsidiaries which have not guaranteed such notes are “minor” (as defined in Rule 3-10(h) of Regulation S-X).the subsidiary guarantors. As of September 30, 2016,2017, there were no significant restrictions on the ability of our subsidiaries to distribute cash to us or our guarantor subsidiaries.
Refinancing Transaction and Senior Notes
7.0% Senior Notes
On July 23, 2015, the Company issued at par $375.0 million in aggregate principal amount of 7.0% senior notes due 2023 (“7% Senior Notes”) pursuant to the indenture,Indenture, dated as of July 23, 2015 (the “Indenture”), at an issue price equal to 100.0% ofbetween the aggregate principal amount of the Senior Notes.Company and U.S. Bank, National Association, as Trustee. The Senior Notes are guaranteed by all of the Company’s direct and indirect restricted subsidiaries. CC-Reno, LLC and the Silver Legacy Joint Venture became guarantors in June 2016 upon receipt of the required gaming regulatory approval which occurred in May 2016. The7% Senior Notes will mature on August 1, 2023, with interest payable semi-annually in arrears on February 1 and August 1 of each year.
The Company used the net proceeds from the Senior Notes offering together with borrowings under the Term Loan and the Revolving Credit Facility (as defined below) to (i) purchase or otherwise redeem (a) all of the outstanding Resorts senior secured notes and (b) all of the outstanding MTR second lien notes, (ii) pay a portion of the purchase price for the Circus Reno/Silver Legacy Purchase and repay all amounts outstanding under the Silver Legacy Joint Venture credit facility, and (iii) pay fees and costs associated with such transactions. Net proceeds from the Senior Notes offering totaling $50.0 million were used for the Circus Reno/Silver Legacy Purchase on the Reno Acquisition Date. As a result of the July 2015 refinancing, we recognized a $2.0 million net loss on the early retirement of debt.
16
On or after August 1, 2018, the Company may redeem all or a portion of the 7% Senior Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of the principal amount) set forth below plus accrued and unpaid interest and additional interest, if any, on the 7% Senior Notes redeemed, to the applicable redemption date, if redeemed during the twelve month period beginning on August 1 of the years indicated below:
Year |
| Percentage |
|
| |
2018 |
|
| 105.250 |
| % |
2019 |
|
| 103.500 |
| % |
2020 |
|
| 101.750 |
| % |
2021 and thereafter |
|
| 100.000 |
| % |
Prior to August 1, 2018, the Company may redeem all or a portion of the 7% Senior Notes at a price equal to 100% of the 7% Senior Notes redeemed plus accrued and unpaid interest to the redemption date, plus a make-whole premium. At any time prior to August 1, 2018, the Company is also entitled to redeem up to 35% of the original aggregate principal amount of the 7% Senior Notes with proceeds of certain equity financings at a redemption price equal to 107% of the principal amount of the 7% Senior Notes redeemed, plus accrued and unpaid interest. If the Company experiences certain change of control events (as defined in the Indenture), it must offer to repurchase the 7% Senior Notes at 101% of their principal amount, plus accrued and unpaid interest to the applicable repurchase date. If the Company sells assets under certain circumstances and does not use the proceeds for specified purposes, the Company must offer to repurchase the 7% Senior Notes at 100% of their principal amount, plus accrued and unpaid interest to the applicable repurchase date.
The 7% Senior Notes are subject to redemption imposed by gaming laws and regulations of applicable gaming regulatory authorities.
The Indenture contains certain covenants limiting, among other things, the Company’s ability and the ability of its subsidiaries (other than its unrestricted subsidiaries) to:
pay dividends or distributions or make certain other restricted payments or investments;
incur or guarantee additional indebtedness or issue disqualified stock or create subordinated indebtedness that is not subordinated to the 7% Senior Notes or the guarantees of the 7% Senior Notes;
create liens;
transfer and sell assets;
merge, consolidate, or sell, transfer or otherwise dispose of all or substantially all of the Company’s assets;
enter into certain transactions with affiliates;
|
|
|
|
|
|
|
|
|
|
|
|
create restrictions on dividends or other payments by restricted subsidiaries.
|
|
These covenants are subject to a number of exceptions and qualifications as set forth in the Indenture. The Indenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on such 7% Senior Notes to be declared due and payable. As of September 30, 2016,2017, the Company was in compliance with all of the covenants under the Indenture relating to the 7% Senior Notes.
6.0% Senior Notes
On March 29, 2017, Eagle II Acquisition Company LLC (“Eagle II”), a wholly-owned subsidiary of the Company, issued $375.0 million aggregate principal amount of 6% Senior Notes due 2025 (the “6% Senior Notes”) pursuant to an indenture, dated as of March 29, 2017 (the “New Indenture”), between Eagle II and U.S. Bank, National Association, as Trustee. The 6% Senior Notes will mature on April 1, 2025, with interest payable semi-annually in arrears on April 1 and October 1, commencing October 1, 2017. The proceeds of the offering, and additional funds in the amount of $1.9 million in respect of interest expected to be accrued on the 6% Senior Notes, were placed in escrow pending satisfaction of certain conditions, including consummation of the Isle Acquisition. In connection with the consummation of the Isle Acquisition on May 1, 2017, the escrowed funds were released and the Company assumed Eagle II’s obligations under the 6% Senior Notes and the New Indenture and certain of the Company’s subsidiaries (including Isle and certain of its subsidiaries) executed guarantees of the Company’s obligations under the 6% Senior Notes.
On September 13, 2017, the Company issued an additional $500.0 million principal amount of its 6% Senior Notes at an issue price equal to 105.5% of the principal amount of the 6% Senior Notes. The additional notes were issued pursuant to the New Indenture that governs the 6% Senior Notes. The Company used the proceeds of the offering to repay $78.0 million of outstanding borrowings under the revolving credit facility and used the remainder to repay $444.5 million outstanding borrowings under the term loan facility and related accrued interest.
On or after April 1, 2020, the Company may redeem all or a portion of the 6% Senior Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of the principal amount) set forth below plus accrued and unpaid interest and additional interest, if any, on the 6% Senior Notes redeemed, to the applicable redemption date, if redeemed during the 12-month period beginning on April 1 of the years indicated below:
Year |
| Percentage |
|
| |
2020 |
|
| 104.500 |
| % |
2021 |
|
| 103.000 |
| % |
2022 |
|
| 101.500 |
| % |
2023 and thereafter |
|
| 100.000 |
| % |
Prior to April 1, 2020, the Company may redeem all or a portion of the 6% Senior Notes at a price equal to 100% of the 6% Senior Notes redeemed plus accrued and unpaid interest to the redemption date, plus a make-whole premium. At any time prior to August 1, 2018, the Company is also entitled to redeem up to 35% of the original aggregate principal amount of the 6% Senior Notes with proceeds of certain equity financings at a redemption price equal to 106% of the principal amount of the 6% Senior Notes redeemed, plus accrued and unpaid interest. If the Company experiences certain change of control events (as defined in the New Indenture), it must offer to repurchase the 6% Senior Notes at 101% of their principal amount, plus accrued and unpaid interest to the applicable repurchase date. If the Company sells assets under certain circumstances and does not use the proceeds for specified purposes, the Company must offer to repurchase the 6% Senior Notes at 100% of their principal amount, plus accrued and unpaid interest to the applicable repurchase date.
The 6% Senior Notes are subject to redemption imposed by gaming laws and regulations of applicable gaming regulatory authorities.
The New Indenture contains certain covenants limiting, among other things, the Company’s ability and the ability of its subsidiaries (other than its unrestricted subsidiaries) to:
pay dividends or distributions or make certain other restricted payments or investments;
incur or guarantee additional indebtedness or issue disqualified stock or create subordinated indebtedness that is not subordinated to the 6% Senior Notes or the guarantees of the 6% Senior Notes;
create liens;
merge, consolidate, or sell, transfer or otherwise dispose of all or substantially all of the Company’s assets;
enter into certain transactions with affiliates;
engage in lines of business other than the Company’s core business and related businesses; and
create restrictions on dividends or other payments by restricted subsidiaries.
These covenants are subject to a number of exceptions and qualifications as set forth in the New Indenture. The New Indenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on such 6% Senior Notes to be declared due and payable. As of September 30, 2017, the Company was in compliance with all of the covenants under the New Indenture relating to the 6% Senior Notes.
Refinancing of the Term Loan and Revolving Credit Facility
Credit Facility
On July 23, 2015, the Company entered into a new $425.0 million seven year term loan (the “Term Loan”) and a new $150.0 million five year revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan, the “Credit“Prior Credit Facility”).
As of September 30, 2016, the Company had $419.7 million outstanding on the Term Loan and $19.0 million outstanding under the Revolving Credit Facility. The Company had $131.0 million of available borrowing capacity under its Revolving Credit Facility as of September 30, 2016. At September 30, 2016, the interest rate on the Term Loan was 4.25%, and the interest rate on the Revolving Credit Facility was 4.17%.
The Term Loan bearsbore interest at a rate per annum of, at the Company’s option, either (x) LIBOR plus 3.25%, with a LIBOR floor of 1.0%, or (y) a base rate plus 2.25%. Borrowings under the Revolving Credit Facility bearbore interest at a rate per annum of, at the Company’s option, either (x) LIBOR plus a spread ranging from 2.5% to 3.25% or (y) a
17
base rate plus a spread ranging from 1.5% to 2.25%, in each case with the spread determined based on the Company’s total leverage ratio. Additionally, the Company paid a commitment fee on the unused portion of the Revolving Credit Facility not being utilized in the amount of 0.50% per annum.
On May 1, 2017, all of the outstanding amounts under the Prior Credit Facility were repaid with proceeds of borrowings under the New Credit Facility and the Prior Credit Facility was terminated.
New Credit Facility
On April 17, 2017, Eagle II entered into a new credit agreement by and among Eagle II, as initial borrower, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto dated as of April 17, 2017 (the “New Credit Facility”), consisting of a $1.45 billion term loan facility (the “New Term Loan Facility” or “New Term Loan”) and a $300.0 million revolving credit facility (the “New Revolving Credit Facility”), which was undrawn at closing. The proceeds of the New Term Loan Facility, and additional funds in the amount of $4.5 million in respect of interest expected to be accrued on the New Term Loan Facility, were placed in escrow pending satisfaction of certain conditions, including consummation of the Isle Acquisition. In connection with the consummation of the Isle Acquisition on May 1, 2017, the escrowed funds were released and ERI assumed Eagle II’s obligations under the New Credit Facility and certain of ERI’s subsidiaries (including Isle and certain of its subsidiaries) executed guarantees of ERI’s obligations under the New Credit Facility.
As of September 30, 2017, the Company had $1.0 billion outstanding on the New Term Loan. There were no borrowings outstanding under the New Revolving Credit Facility as of September 30, 2017. The Company had $291.6 million of available borrowing capacity, after consideration of $8.4 million in outstanding letters of credit, under its New Revolving Credit Facility as of September 30, 2017. At September 30, 2017, the interest rate on the New Term Loan was 3.42%, and the weighted average interest rate on the New Revolving Credit Facility was 4.12% based upon the weighted average interest rate of borrowings outstanding on our New Revolving Credit Facility as of September 30, 2017.
The Company applied the net proceeds of the New Term Loan Facility and borrowings under the New Revolving Credit Facility, together with the proceeds of the 6% Senior Notes, and cash on hand, to (i) pay the cash portion of the consideration payable in the Isle Merger, (ii) refinance all of the debt outstanding under Isle’s existing credit facility, (iii) redeem or otherwise repurchase all of Isle’s outstanding senior and senior subordinated notes, (iv) refinance the Company’s Prior Credit Facility and (v) pay fees and costs associated with the foregoing.
The Company’s obligations under the New Revolving Credit Facility will mature on April 17, 2022. The Company’s obligations under the New Term Loan Facility will mature on April 17, 2024. The Company was required to make quarterly principal payments in an amount equal to $3.6 million on the New 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 30, 2017 in conjunction with the issuance of the additional 6% Senior Notes. In addition, the Company is required to make mandatory payments of amounts
outstanding under the New 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 New Credit Facility.
The interest rate per annum applicable to loans under the New Revolving Credit Facility are, at our option, either (i) LIBOR plus a margin ranging from 1.75% to 2.50% or (ii) a base rate plus a margin ranging from 0.75% to 1.50%, which margin is based on our total leverage ratio. The interest rate per annum applicable to the loans under the New Term Loan Facility is, at our option, either (i) LIBOR plus 2.25%, or (ii) a base rate plus 1.25%; provided, however, that in no event will LIBOR be less than zero or the base rate be less than 1.00% over the term of the New Term Loan Facility or the New Revolving Credit Facility. Additionally, the Company pays a commitment fee on the unused portion of the Revolving Credit Facility not being utilized in the amount of 0.50% per annum.
The New Credit Facility contains a number of customary covenants that, among other things, restrict, subject to certain exceptions, the Company’s ability and the ability of the subsidiary guarantors to incur debt; create liens on collateral; engage in mergers, consolidations or asset dispositions; pay dividends or make distributions; make investments, loans or advances; engage in certain transactions with affiliates or subsidiaries; or modify their lines of business.
The New Credit Facility is secured by substantially all of the Company’s personal property assets and substantially all personal property assets of each subsidiary that guaranties the New Credit Facility (other than certain subsidiary guarantors designated as immaterial) (the “Credit“New Credit Facility Guarantors”), whether owned on the closing date of the New Credit Facility or thereafter acquired, and mortgages on the real property and improvements owned or leased us or the New Credit Facility Guarantors. The New Credit Facility is also secured by a pledge of all of the equity owned by usthe Company and the New Credit Facility Guarantors (subject to certain gaming law restrictions). The credit agreement governing the New Credit Facility contains a number of customary covenants that, among other things, restrict, subject to certain exceptions, the Company’s ability and the ability of the New Credit Facility Guarantors to incur additional indebtedness, create liens on collateral, engage in mergers, consolidations or asset dispositions, make distributions, make investments, loans or advances, engage in certain transactions with affiliates or subsidiaries or make capital expenditures.
The credit agreement governing theNew Credit Facility also includes certain financial covenants, including the requirements that we maintain throughout the Company maintainsterm of the New Credit Facility and measured as of the end of each fiscal quarter, and solely with respect to loans under the New Revolving Credit Facility, a maximum total leverage ratio and a minimum interest coverage ratio (adjusting over time). The Company is required to maintain a maximumconsolidated total leverage ratio of not more than 6.50 to 1.00 for the period beginning on the closing date and ending with the fiscal quarter ending December 31, 2018, 6.00 to 1.00 fromfor the period beginning with the fiscal quarter beginning January 1, 2016 to2019 and ending with the fiscal quarter ending December 31, 20172019, and 5.005.50 to 1.00 for the period beginning with the fiscal quarter beginning January 1, 2020 and thereafter. In addition, theThe Company iswill also be required to maintain a minimuman interest coverage ratio in an amount not less than 2.00 to 1.00 measured on the last day of each fiscal quarter beginning on the closing date, and ending with the fiscal quarter ending December 31, 2018, 2.50 to 1.00 for the period beginning with the fiscal quarter beginning January 1, 2019 and ending with the fiscal quarter ending December 31, 2019, and 2.75 to 1.00 fromfor the period beginning with the fiscal quarter beginning January 1, 2016 through December 31, 20162020 and 3.00 to 1.00 thereafter. A default of the financial ratio covenants shall only become an event of default under the Term Loan if the lenders providing the Revolving Credit Facility take certain affirmative actions after the occurrence of a default of such financial ratio covenants.
The credit agreement governing theNew Credit Facility contains a number of customary events of default, including, among others, for the non-payment of principal, interest or other amounts, the inaccuracy of certain representations and warranties, the failure to perform or observe certain covenants, a cross default to our other indebtedness including the Senior Notes, certain events of bankruptcy or insolvency,insolvency; certain ERISA events, the invalidity of certain loan documents, certain changes of control and the loss of certain classes of licenses to conduct gaming. If any event of default occurs, the lenders under the New Credit Facility would be entitled to take various actions, including accelerating amounts dueoutstanding thereunder and taking all actions permitted to be taken by a secured creditor. creditor. As of September 30, 2016,2017, the Company was in compliance with the covenants under the New Credit Facility.
Note 8. Fair Value of Financial Instruments
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.
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|
|
|
The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practical to estimate fair value:
Cash and Cash Equivalents: Cash equivalents include investments in money market funds. Investments in this category can be redeemed immediately at the current net asset value per share. A money market fund is a mutual fund whose investments are primarily in short‑term debt securities designed to maximize current income with liquidity and capital preservation, usually maintaining per share net asset value at a constant amount, such as one dollar. The carrying amounts approximate the fair value because of the short maturity of those instruments.instruments (Level 1).
Restricted Cash:Cash and Investments: Restricted cash includes unredeemed winning tickets from the Company’s racing operations, funds related to horsemen’s fines and certain simulcasting funds that are restricted to payments for improving horsemen’s facilities and racing purses, at Scioto Downs, cash deposits that serve as collateral for letters of credit, surety
18
bonds and short-term certificates of deposit that serve as collateral for certain bonding requirements. RestrictedThe estimated fair values of our restricted cash and investments are based upon quoted prices available in active markets (Level 1), or quoted prices for similar assets in active and inactive markets (Level 2), and represent the amounts we would expect to receive if we sold our restricted cash and investments.
Accounts Receivable and Credit Risk. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of casino accounts receivable. The Company issues markers to approved casino customers following background checks and assessments of creditworthiness. Trade receivables, including casino and hotel receivables, are typically non‑interest bearing. Accounts are written off when management deems the account to be uncollectible. Recoveries of accounts previously written off are recorded when received. An estimated allowance for doubtful accounts is classifiedmaintained to reduce the Company’s receivables to their carrying amount, which approximates fair value. The allowance is estimated based on specific review of customer accounts as well as historical collection experience and current economic and business conditions. Management believes that no significant concentrations of credit risk related to receivables existed.
There were no transfers between Level 1 as its carrying value approximates market prices.
Long‑term Debt: The Senior Notes are classified asand Level 2 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 market inputs. The Term Loan underquoted 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 credit facility is classified as Level 2 as it is tiedamounts we would expect to market rates of interest and its carrying value approximates market value.receive if we sold these marketable securities.
Long‑term Debt: The fair value of the Senior Notes wasour long-term debt or other long-term obligations is estimated based on the quoted market prices at September 30, 2016.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:Consideration: 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. The Company considers the acquisition related contingency’s fair value measurement, which includes forecast assumptions, to be Level 3 within the fair value hierarchy.
The estimated fair values of the Company’s financial instruments are as follows (amounts in thousands):
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| September 30, 2016 |
| December 31, 2015 |
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| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||||||||||||||
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| Carrying |
| Fair |
| Carrying |
| Fair |
|
| Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
| ||||||||||||
|
| Amount |
| Value |
| Amount |
| Value |
|
| Amount |
|
| Value |
|
| Amount |
|
| Value |
| ||||||||||||
Financial assets: |
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|
|
|
|
|
|
|
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|
|
|
Cash and cash equivalents |
| $ | 44,609 |
| $ | 44,609 |
| $ | 78,278 |
| $ | 78,278 |
|
| $ |
| 134,903 |
|
| $ |
| 134,903 |
|
| $ |
| 61,029 |
|
| $ |
| 61,029 |
|
Restricted cash |
|
| 2,395 |
|
| 2,395 |
|
| 5,271 |
|
| 5,271 |
|
|
| 21,307 |
|
|
| 21,307 |
|
|
| 2,414 |
|
|
| 2,414 |
| ||||
Marketable securities |
|
| 17,461 |
|
|
| 17,461 |
|
|
| — |
|
|
| — |
| |||||||||||||||||
Financial liabilities: |
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| ||||
Senior Notes |
| $ | 366,602 |
| $ | 395,625 |
| $ | 366,043 |
| $ | 367,500 |
| ||||||||||||||||||||
7% Senior Notes |
| $ |
| 367,579 |
|
| $ |
| 402,187 |
|
| $ |
| 366,859 |
|
| $ |
| 397,500 |
| |||||||||||||
6% Senior Notes |
|
| 881,091 |
|
|
| 916,563 |
|
|
| — |
|
|
| — |
| |||||||||||||||||
New Term Loan |
|
| 981,559 |
|
|
| 1,003,177 |
|
|
| — |
|
|
| — |
| |||||||||||||||||
Other long-term debt |
|
| 2,950 |
|
|
| 2,950 |
|
|
| — |
|
|
| — |
| |||||||||||||||||
Term Loan |
|
| 406,601 |
|
| 424,430 |
|
| 408,410 |
|
| 419,796 |
|
|
| — |
|
|
| — |
|
|
| 406,047 |
|
|
| 423,858 |
| ||||
Revolving Credit Facility |
|
| 16,835 |
|
| 19,000 |
|
| 90,967 |
|
| 93,500 |
|
|
| — |
|
|
| — |
|
|
| 26,977 |
|
|
| 29,000 |
| ||||
Acquisition-related contingent considerations |
|
| 490 |
|
| 490 |
|
| 529 |
|
| 529 |
|
|
| 460 |
|
|
| 460 |
|
|
| 496 |
|
|
| 496 |
|
The following table represents the change in acquisition-related contingent consideration liabilities for the period December 31, 20152016 to September 30, 2016:2017:
Balance as of December 31, 2016 | $ | 496 | |||
Amortization of present value discount(1) |
|
|
| 50 | |
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|
| |||
| |||||
Fair value adjustment for change in consideration expected to be paid(2) |
|
| 4 |
| |
Settlements |
|
| (90 | ) | |
Balance as of September 30, |
| $ | 460 |
|
(1) | Changes in present value are included as a component of interest expense in the consolidated statements of operations. |
(2) | Fair value adjustments for changes in earn-out estimates are included in general and administrative expense in the consolidated statements of operations. |
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, 20162017 and 20152016 (dollars in thousands, except per share amounts):
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| Three Months Ended |
|
| Nine Months Ended |
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| Three Months Ended |
| Nine Months Ended |
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| September 30, |
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| September 30, |
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| September 30, |
| September 30, |
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| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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| 2016 |
| 2015 |
| 2016 |
| 2015 |
|
| (unaudited) |
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| (unaudited) |
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|
| (unaudited) |
| (unaudited) |
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Income (loss) from continuing operations |
| $ |
| 28,116 |
|
| $ |
| 9,682 |
|
| $ |
| (18,147 | ) |
| $ |
| 23,842 |
| |||||||||||||
Income from discontinued operations, net of income taxes |
|
|
| 1,438 |
|
|
|
| — |
|
|
|
| 2,393 |
|
|
|
| — |
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Net income available to common stockholders |
| $ | 9,682 |
| $ | 5,399 |
| $ | 23,842 |
| $ | 4,030 |
|
| $ |
| 29,554 |
|
| $ |
| 9,682 |
|
| $ |
| (15,754 | ) |
| $ |
| 23,842 |
|
Shares outstanding: |
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Weighted average shares outstanding - basic |
|
| 47,193,120 |
|
| 46,516,614 |
|
| 47,106,706 |
|
| 46,509,369 |
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|
|
| 76,902,070 |
|
|
|
| 47,193,120 |
|
|
| 63,821,705 |
|
|
| 47,106,706 |
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Effect of dilutive securities: |
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Stock options |
|
| 63,157 |
|
| — |
|
| 107,790 |
|
| — |
|
|
| 128,696 |
|
|
| 63,157 |
|
|
| 85,977 |
|
|
| 107,790 |
| ||||
RSUs |
|
| 578,367 |
|
| 246,975 |
|
| 523,096 |
|
| 111,590 |
|
|
|
| 928,923 |
|
|
|
| 578,367 |
|
|
|
| 860,492 |
|
|
|
| 523,096 |
|
Weighted average shares outstanding - diluted |
|
| 47,834,644 |
|
| 46,763,589 |
|
| 47,737,592 |
|
| 46,620,959 |
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|
|
| 77,959,689 |
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|
|
| 47,834,644 |
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|
| 64,768,174 |
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| 47,737,592 |
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Basic net income per common share |
| $ | 0.21 |
| $ | 0.12 |
| $ | 0.51 |
| $ | 0.09 |
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Diluted net income per common share |
| $ | 0.20 |
| $ | 0.12 |
| $ | 0.50 |
| $ | 0.09 |
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Income (loss) per common share attributable to common stockholders - basic: |
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Income (loss) from continuing operations |
| $ |
| 0.36 |
|
| $ |
| 0.21 |
|
| $ |
| (0.28 | ) |
| $ |
| 0.51 |
| |||||||||||||
Income from discontinued operations, net of income taxes |
|
|
| 0.02 |
|
|
|
| — |
|
|
|
| 0.03 |
|
|
|
| — |
| |||||||||||||
Net income (loss) attributable to common stockholders |
| $ |
| 0.38 |
|
| $ |
| 0.21 |
|
| $ |
| (0.25 | ) |
| $ |
| 0.51 |
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| |||||||||||||
Income (loss) per common share attributable to common stockholders - diluted: |
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|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income (loss) from continuing operations |
| $ |
| 0.36 |
|
| $ |
| 0.20 |
|
| $ |
| (0.28 | ) |
| $ |
| 0.50 |
| |||||||||||||
Income from discontinued operations, net of income taxes |
|
|
| 0.02 |
|
|
|
| — |
|
|
|
| 0.03 |
|
|
|
| — |
| |||||||||||||
Net income (loss) attributable to common stockholders |
| $ |
| 0.38 |
|
| $ |
| 0.20 |
|
| $ |
| (0.25 | ) |
| $ |
| 0.50 |
|
19
Note 10. Commitments and Contingencies
Litigation.Litigation. The Company is a party to various lawsuits, which have arisen in the normal course of business. Estimated losses are accrued for these lawsuits and claims when the loss is probable and can be estimated. The current liability for the estimated losses associated with those lawsuits is not material to the consolidated financial condition and those estimated losses are not expected to have a material impact on the results of operations.
In connection with the Mergers,Isle Merger, a class action lawsuit was filed by a purported stockholder of the Company alleging breach of fiduciary duty by the Company board of directors in connection with the Mergers.Isle Merger. The case was filed on November 8, 2016 in the Second Judicial District Court of the State of Nevada and is captioned Assad v. Eldorado Resorts, Inc., et. al, case no. CV 16-02312. The case,lawsuit, which purportspurported to be a class action on behalf of all of the stockholders of the Company, alleged, among other things, breach of fiduciary duty in failing to disclose all material information to stockholders in seeking approval of the issuance of shares of Company Common Stock in the MergersIsle Merger and requestsrequested injunctive reliefrelief. In the suit, the Plaintiff sought to enjoin the shareholder meeting to approve the sale. The request to enjoin the shareholder meeting lawsuit has since been withdrawn and, on May 31, 2017, the Court denied plaintiff’s application for an award of costs incurredattorneys’ fees and expenses. This matter was dismissed by the plaintiffCourt in the action.August 2017.
Environmental Remediation. In October 2004, the Company acquired229 acres of real property, known as the International Paper site, as an alternative site to build Presque Isle Downs. In connection with the acquisition of the International Paper site, the Company entered into a consent order and decree (the “Consent Order”) with the Pennsylvania Department of Environmental Protection (“PaDEP”) and International Paper insulating us from liability for certain pre‑existing contamination, subject to compliance with the Consent Order, which included a proposed environmental remediation plan for the site, which was tied specifically to the use of the property as a racetrack. The proposed environmental remediation plan in the Consent Order was based upon a “baseline environmental report” and management estimated that such remediation would be subsumed within the cost of developing the property as a racetrack. The racetrack was never developed at this site. In October 2005, the Company sold 205 acres to GEIDC who assumed primary responsibility for the remediation obligations under the Consent Order relating to the “South Yard and the Dunn Brickyard” parcels they acquired. However, the Company was advised by the PaDEP that it was not released from its liability and responsibility under the Consent Order for the “Main Site” parcel as its remediation was undertaken by the Company prior to the sale to GEIDC and nearly complete. Pursuant to the sale, the Company purchased an Environmental Risk Insurance Policy in the amount of $10.0 million with respect to the property. The Company secured an Act 2 Release of Liability for the Main Site on January 6, 2006. GEIDC subsequently obtained Act 2 releases for the South Yard and Dunn Brickyard parcels on March 26, 2013 and January 17, 2014, respectively. In October 2015, the Company renewed the insurance policy for a period of one year to seek an expert opinion regarding any continuing liability regarding the property. Having received such an opinion, the Company elected to no longer renew the insurance policy.
Regulatory Gaming Assessments. The Pennsylvania Gaming Control Board (the “PGCB”), the Pennsylvania Department of Revenue and the Pennsylvania State Police (collectively, “the Borrowers”), were required to fund the costs they incurred in connection with the initial development of the infrastructure to support gaming operations in Pennsylvania as well as the initial ongoing costs of the Borrowers. The initial funding of these costs was provided from a loan from the Pennsylvania General Fund in the amount of $36.1 million, and further funding was provided from additional loans from the Pennsylvania Property Tax Reserve Fund in the aggregate amount of $63.8 million.
The Pennsylvania Department of Revenue will assess all licensees, including Presque Isle Downs, their proportionate share of amounts represented by the borrowings, which are in the aggregate amount of $99.9 million, once the designated number of Pennsylvania’s slot machine licensees is operational. On July 11, 2011, the PGCB issued an administrative order which established that payments associated with the $63.8 million that was borrowed from the Property Tax Reserve Fund would commence on January 1, 2012. The repayment allocation between all current licensees is based upon equal weighting of (1) cumulative gross slot revenue since inception in relation to the combined cumulative gross slot revenue for all licensees and (2) single year gross slot revenue (during the state’s fiscal year ending June 30) in relation to the combined single year gross slot revenue for all licensees; and amounts paid each year will be adjusted annually based upon changes in the licensee’s proportionate share of gross slot revenue. We have estimated that our total proportionate share of the aggregate $63.8 million to be assessed to the gaming facilities will be $4.1 million and will be paid quarterly over a ten‑year period, which began effective January 1, 2012. For the $36.1 million that was borrowed from the General Fund, payment is scheduled to begin after all fourteen licensees are operational. Although we cannot determine when payment will begin, it has considered a similar repayment model for the General Fund borrowings and estimated that its total proportionate share of the aggregate $36.1 million to all fourteen gaming facilities
20
will approximate between $1.9 million and $2.1 million, which has been accrued in the accompanying consolidated balance sheet at September 30, 2016 and December 31, 2015.
The recorded estimate relative to the Property Tax Reserve Fund is subject to revision based upon future changes in the revenue assumptions utilized to develop the estimate. The estimated total obligation at September 30, 2016 and December 31, 2015, was $4.1 million and $4.3 million, respectively, of which the residual total amount, both current and long-term, of $1.9 million and $2.2 million at September 30, 2016 and December 31, 2015, respectively, are appropriately accrued in the accompanying consolidated balance sheet. The Company paid $0.3 million for the nine months ended September 30, 2016.
Agreements with Horsemen and Pari-mutuel Clerks. The Federal Interstate Horse Racing Act and the state racing laws in West Virginia, Ohio and Pennsylvania require that, in order to simulcast races, we have written agreements with the horse owners and trainers at those racetracks. In addition, in order to operate slot machines in West Virginia, we are required to enter into written agreements regarding the proceeds of the slot machines (a “proceeds agreement”) with a representative of a majority of the horse owners and trainers and with a representative of a majority of the pari‑mutuel clerks. In Pennsylvania and Ohio, we must have an agreement with the representative of the horse owners. We have the requisite agreements in place with the horsemen at Mountaineer until December 31, 2018. With respect to the Mountaineer pari‑mutuel clerks, we have a labor agreement in force until November 30, 2016,2017, which will automatically renew for an additional one yearone-year period, and a proceeds agreement until April 14, 2018. We are required to have a proceeds agreement in effect on July 1 of each year with the horsemen and the pari‑mutuel clerks as a condition to renewal of our video lottery license for such year. If the requisite proceeds agreement is not in place as of July 1 of a particular year, Mountaineer’s application for renewal of its video lottery license could be denied, in which case Mountaineer would not be permitted to operate either its slot machines or table games. Scioto Downs has the requisite agreement in place with the OHHA until December 31, 2023, with automatic two‑yeartwo-year renewals unless either party requests re‑negotiation pursuant to its terms. Presque Isle
Downs has the requisite agreement in place with the Pennsylvania Horsemen’s Benevolent and Protective Association until May 1, 2019. With the exception of the respective Mountaineer, Presque Isle Downs and Scioto Downs horsemen’s agreements and the agreement between Mountaineer and the pari‑mutuel clerks’ union described above, each of the agreements referred to in this paragraph may be terminated upon written notice by either party.
Note 11. Related PartiesAffiliates
The accompanying balance sheets include the Company’s payable to C.S. &Y. Associates (“CS&Y”) which is an entity partially owned by Recreational Enterprises, Inc. (“REI”). The Company’s Chief Executive Officer and Chairman of the Board, Gary L. Carano, and its Senior Vice President of Regional Operations, Gene Carano, are the directors of REI and members of the Carano family, including Gary L. Carano and Gene Carano, own the equity interests in REI. 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, a general partnership of which Donald L. Carano is a general partner. Mr. Carano is also a major shareholder in the Company. AsCS&Y. No amounts were due to or due from CS&Y as of September 30, 2016 and2017. As of December 31, 2015,2016, the Company’s payable to C. S. & Y Associates amounted to $0.2CS&Y totaled $0.3 million and $0.1 million, respectively, and is reflected on the accompanying balance sheetssheet under “due to affiliates”. There were no payablesaffiliates.”
The Company holds a 42.1% variable interest in a partnership with other investors that developed a new 118-room Hampton Inn & Suites hotel at Scioto Downs that opened in March 2017. Pursuant to the terms of the partnership agreement, the Company contributed $1.0 million of cash and 2.4 acres of a leasehold immediately adjacent to The Brew Brothers microbrewery and restaurant at Scioto Downs. The partnership constructed the hotel at a cost of $16.0 million and other related parties asinvestor members operate the hotel. As of September 30, 20162017, the Company’s receivable from the partnership totaled $71,000 and December 31, 2015.
21
payable to the partnership totaled $30,000 and are reflected on the accompanying balance sheet under “due from affiliates” and “due to affiliates.”
Note 12. Segment Information
The following table sets forth, for the periods indicated, certain operating data for our reportable segments. Management viewsWe view each of our properties 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. ThePrior to the Isle Acquisition, the Company’s principal operating activities occuroccurred in three geographic regions: Nevada, Louisiana and parts of the eastern United States. The Company has aggregated its operating segmentsoperations into three reportable segments: Eldorado Reno, Silver Legacy and Circus Renosegments based on the similar characteristics of the operating segments within the regions in which they operated as Nevada, Eldorado Shreveport as Louisiana, and Scioto Downs, Presque Isle and Mountaineer as Eastern.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended |
| Nine months ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||
|
| (in thousands, unaudited) |
| ||||||||||
Revenues and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nevada: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues |
| $ | 89,676 |
| $ | 29,002 |
| $ | 246,608 |
| $ | 79,961 |
|
Expenses, excluding depreciation and corporate |
|
| (69,218) |
|
| (23,236) |
|
| (196,242) |
|
| (66,756) |
|
Gain (loss) on sale or disposal of property |
|
| 12 |
|
| (16) |
|
| (168) |
|
| (11) |
|
Equity in income of unconsolidated affiliate |
|
| — |
|
| 2,548 |
|
| — |
|
| 3,136 |
|
Depreciation |
|
| (4,864) |
|
| (1,959) |
|
| (15,373) |
|
| (5,833) |
|
Operating income—Nevada |
| $ | 15,606 |
| $ | 6,339 |
| $ | 34,825 |
| $ | 10,497 |
|
Louisiana: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues |
| $ | 33,984 |
| $ | 34,651 |
| $ | 100,514 |
| $ | 103,919 |
|
Expenses, excluding depreciation and amortization |
|
| (25,308) |
|
| (27,012) |
|
| (75,935) |
|
| (81,217) |
|
Gain on sale or disposal of property |
|
| — |
|
| 64 |
|
| 50 |
|
| 63 |
|
Depreciation and amortization |
|
| (1,973) |
|
| (1,902) |
|
| (5,883) |
|
| (5,709) |
|
Operating income—Louisiana |
| $ | 6,703 |
| $ | 5,801 |
| $ | 18,746 |
| $ | 17,056 |
|
Eastern: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues |
| $ | 117,905 |
| $ | 119,887 |
| $ | 339,324 |
| $ | 349,744 |
|
Expenses, excluding depreciation, amortization and corporate |
|
| (93,969) |
|
| (93,756) |
|
| (268,896) |
|
| (274,666) |
|
Gain (loss) on sale or disposal of property |
|
| 13 |
|
| — |
|
| (671) |
|
| — |
|
Depreciation and amortization |
|
| (8,847) |
|
| (9,979) |
|
| (25,990) |
|
| (30,611) |
|
Operating income—Eastern |
| $ | 15,102 |
| $ | 16,152 |
| $ | 43,767 |
| $ | 44,467 |
|
Corporate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses |
| $ | (4,426) |
| $ | (3,652) |
| $ | (15,684) |
| $ | (11,713) |
|
Acquisition charges |
|
| (4,750) |
|
| (380) |
|
| (5,326) |
|
| (717) |
|
(Loss) gain on sale or disposal of property |
|
| — |
|
| (54) |
|
| 49 |
|
| (54) |
|
Depreciation and amortization |
|
| (126) |
|
| (114) |
|
| (351) |
|
| (301) |
|
Operating loss—Corporate |
| $ | (9,302) |
| $ | (4,200) |
| $ | (21,312) |
| $ | (12,785) |
|
Total Reportable Segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues |
| $ | 241,565 |
| $ | 183,540 |
| $ | 686,446 |
| $ | 533,624 |
|
Expenses, excluding depreciation and amortization |
|
| (192,921) |
|
| (147,656) |
|
| (556,757) |
|
| (434,352) |
|
Gain (loss) on sale or disposal of property |
|
| 25 |
|
| (6) |
|
| (740) |
|
| (2) |
|
Equity in income of unconsolidated affiliate |
|
| — |
|
| 2,548 |
|
| — |
|
| 3,136 |
|
Acquisition charges |
|
| (4,750) |
|
| (380) |
|
| (5,326) |
|
| (717) |
|
Depreciation and amortization |
|
| (15,810) |
|
| (13,954) |
|
| (47,597) |
|
| (42,454) |
|
Operating income—Total Reportable Segments |
| $ | 28,109 |
| $ | 24,092 |
| $ | 76,026 |
| $ | 59,235 |
|
Reconciliations to Consolidated Net Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income—Total Reportable Segments |
| $ | 28,109 |
| $ | 24,092 |
| $ | 76,026 |
| $ | 59,235 |
|
Unallocated income and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (12,589) |
|
| (14,482) |
|
| (38,375) |
|
| (48,946) |
|
Loss on early retirement of debt |
|
| — |
|
| (1,790) |
|
| (155) |
|
| (1,790) |
|
Provision for income taxes |
|
| (5,838) |
|
| (2,421) |
|
| (13,654) |
|
| (4,469) |
|
Net income |
| $ | 9,682 |
| $ | 5,399 |
| $ | 23,842 |
| $ | 4,030 |
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, |
| ||||
|
| 2016 |
| 2015 |
| ||
|
| (in thousands, unaudited) |
| ||||
Capital Expenditures |
|
|
|
|
|
|
|
Nevada |
| $ | 12,270 |
| $ | 3,212 |
|
Louisiana |
|
| 4,026 |
|
| 2,491 |
|
Eastern (1) |
|
| 16,278 |
|
| 18,216 |
|
Corporate |
|
| 375 |
|
| 495 |
|
Total |
| $ | 32,949 |
| $ | 24,414 |
|
22
follows:
Segment |
| Property | State | |
Nevada | Eldorado Reno | Nevada | ||
Silver Legacy | Nevada | |||
Circus Reno | Nevada | |||
Louisiana | Eldorado Shreveport | Louisiana | ||
Eastern | Presque Isle Downs | Pennsylvania | ||
Scioto Downs | Ohio | |||
Mountaineer | West Virginia |
Following the Isle Acquisition, the Company’s principal operating activities expanded and now occur in four geographic regions and reportable segments based on the similar characteristics of the operating segments within the regions in which they operate. The following table summarizes our current segments:
Segment | Property | State | ||
West | Eldorado Reno | Nevada | ||
Silver Legacy | Nevada | |||
Circus Reno | Nevada | |||
Isle Black Hawk | Colorado | |||
Lady Luck Black Hawk | Colorado | |||
Midwest | Waterloo | Iowa | ||
Bettendorf | Iowa | |||
Boonville | Missouri | |||
Cape Girardeau | Missouri | |||
Caruthersville | Missouri | |||
Kansas City | Missouri | |||
South | Pompano | Florida | ||
Eldorado Shreveport | Louisiana | |||
Lula | Mississippi | |||
Vicksburg | Mississippi | |||
East | Presque Isle Downs | Pennsylvania | ||
Nemacolin | Pennsylvania | |||
Scioto Downs | Ohio | |||
Mountaineer | West Virginia |
The following table sets forth, for the periods indicated, certain operating data for our four reportable segments. Amounts related to pre-acquisition periods (prior to May 1, 2017) conform to prior presentation as the additional operating segments associated with the Isle Acquisition are incremental to the previously disclosed reportable segments.
|
| Three months ended |
|
| Nine months ended |
| ||||||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||||||
|
| (in thousands, unaudited) |
| |||||||||||||||||
Revenues and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues |
| $ |
| 132,775 |
|
| $ |
| 89,676 |
|
| $ |
| 293,528 |
|
| $ |
| 246,608 |
|
Operating income |
|
|
| 32,556 |
|
|
|
| 15,606 |
|
|
|
| 50,507 |
|
|
|
| 34,825 |
|
Midwest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues |
| $ |
| 103,510 |
|
| $ |
| — |
|
| $ |
| 171,015 |
|
| $ |
| — |
|
Operating income |
|
|
| 24,261 |
|
|
|
| — |
|
|
|
| 39,669 |
|
|
|
| — |
|
South: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues |
| $ |
| 81,696 |
|
| $ |
| 33,984 |
|
| $ |
| 183,425 |
|
| $ |
| 100,514 |
|
Operating income |
|
|
| 11,293 |
|
|
|
| 6,703 |
|
|
|
| 28,280 |
|
|
|
| 18,746 |
|
East: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues |
| $ |
| 126,720 |
|
| $ |
| 117,905 |
|
| $ |
| 352,644 |
|
| $ |
| 339,324 |
|
Operating income |
|
|
| 21,140 |
|
|
|
| 15,102 |
|
|
|
| 54,333 |
|
|
|
| 43,767 |
|
Corporate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
| $ |
| 173 |
|
| $ |
| — |
|
| $ |
| 366 |
|
| $ |
| — |
|
Operating loss |
|
|
| (10,326 | ) |
|
|
| (9,302 | ) |
|
|
| (111,834 | ) |
|
|
| (21,312 | ) |
Total Reportable Segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues |
| $ |
| 444,874 |
|
| $ |
| 241,565 |
|
| $ |
| 1,000,978 |
|
| $ |
| 686,446 |
|
Operating income—Total Reportable Segments |
|
|
| 78,924 |
|
|
|
| 28,109 |
|
|
|
| 60,955 |
|
|
|
| 76,026 |
|
Reconciliations to Consolidated Net Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income—Total Reportable Segments |
| $ |
| 78,924 |
|
| $ |
| 28,109 |
|
| $ |
| 60,955 |
|
| $ |
| 76,026 |
|
Unallocated income and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
| (29,183 | ) |
|
|
| (12,589 | ) |
|
|
| (69,380 | ) |
|
|
| (38,375 | ) |
Loss on early retirement of debt |
|
|
| (10,030 | ) |
|
|
| — |
|
|
|
| (37,347 | ) |
|
|
| (155 | ) |
(Provision) benefit for income taxes |
|
|
| (11,595 | ) |
|
|
| (5,838 | ) |
|
|
| 27,625 |
|
|
|
| (13,654 | ) |
Net income (loss) from continuing operations |
| $ |
| 28,116 |
|
| $ |
| 9,682 |
|
| $ |
| (18,147 | ) |
| $ |
| 23,842 |
|
|
| Nine Months Ended September 30, |
| |||||||
|
| 2017 |
|
| 2016 |
| ||||
|
| (in thousands, unaudited) |
| |||||||
Capital Expenditures |
|
|
|
|
|
|
|
|
|
|
West |
| $ |
| 30,498 |
|
| $ |
| 12,270 |
|
Midwest |
|
|
| 6,545 |
|
|
|
| — |
|
South |
|
|
| 4,003 |
|
|
|
| 4,026 |
|
East (1) |
|
|
| 6,791 |
|
|
|
| 16,278 |
|
Corporate |
|
|
| 5,344 |
|
|
|
| 375 |
|
Total |
| $ |
| 53,181 |
|
| $ |
| 32,949 |
|
(1) | Amounts are before any West Virginia capital expenditure reimbursements. |
|
| West |
|
| Midwest |
|
| South |
|
| East |
|
| Corporate, Other & Eliminations |
|
| Total |
| ||||||||||||
Balance sheet as of September 30, 2017 (unaudited) | (in thousands) |
| ||||||||||||||||||||||||||||
Total assets |
| $ |
| 1,282,981 |
|
| $ |
| 1,185,266 |
|
| $ |
| 688,035 |
|
| $ |
| 1,176,264 |
|
| $ |
| (747,289 | ) |
| $ |
| 3,585,257 |
|
Goodwill |
|
|
| 154,467 |
|
|
|
| 334,276 |
|
|
|
| 190,914 |
|
|
|
| 66,825 |
|
|
|
| — |
|
|
|
| 746,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet as of December 31, 2016 |
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ |
| 377,688 |
|
| $ |
| — |
|
| $ |
| 128,427 |
|
| $ |
| 850,904 |
|
| $ |
| (62,975 | ) |
| $ |
| 1,294,044 |
|
Goodwill |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 66,826 |
|
|
|
| — |
|
|
|
| 66,826 |
|
Note 13. Consolidating Condensed Financial Information
Certain of our wholly-owned subsidiaries have fully and unconditionally guaranteed on a joint and several basis, the payment of all obligations under our 7% Senior Notes, 6% Senior Notes and New Credit Facility.
The following wholly-owned subsidiaries of the Company are guarantors, on a joint and several basis, under the 7% Senior Notes, 6% Senior Notes and New Credit Facility: Isle of Capri Casinos LLC; Eldorado Holdco LLC; Eldorado Resorts LLC; Eldorado Shreveport 1 LLC; Eldorado Shreveport 2 LLC; Eldorado Casino Shreveport Joint Venture; MTR Gaming Group Inc.; Mountaineer Park Inc.; Presque Isle Downs Inc.; Scioto Downs Inc.; Eldorado Limited Liability Company; Circus and Eldorado Joint Venture, LLC; CC Reno LLC; CCR Newco LLC; Black Hawk Holdings, L.L.C.; IC Holdings Colorado, Inc.; CCSC/Blackhawk, Inc.; IOC-Black Hawk Distribution Company, LLC; IOC-Black Hawk County, Inc.; Isle of Capri Bettendorf, L.C.; PPI, Inc.; Pompano Park Holdings LLC; IOC-Lula, Inc.; IOC-Kansas City, Inc.; IOC-Boonville, Inc.; IOC-Caruthersville, LLC; IOC Cape Girardeau, LLC; IOC-Vicksburg, Inc.; IOC-Vicksburg, L.L.C.; Rainbow Casino-Vicksburg Partnership, L.P.; IOC Holdings L.L.C. and St. Charles Gaming Company, L.L.C. Each of the subsidiaries’ guarantees is joint and several with the guarantees of the other subsidiaries.
The consolidating condensed balance sheet as of September 30, 2017 is as follows:
Balance Sheet |
| Eldorado Resorts, Inc. (Parent Obligor) |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Consolidating and Eliminating Entries |
|
| Eldorado Resorts, Inc. Consolidated |
| ||||||||||
Current assets |
| $ |
| 31,559 |
|
| $ |
| 348,082 |
|
| $ |
| 21,333 |
|
| $ |
| — |
|
| $ |
| 400,974 |
|
Intercompany receivables |
|
|
| 304,637 |
|
|
|
| — |
|
|
|
| 37,077 |
|
|
|
| (341,714 | ) |
|
|
| — |
|
Investments in subsidiaries |
|
|
| 2,312,039 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (2,312,039 | ) |
|
|
| — |
|
Property and equipment, net |
|
|
| 5,437 |
|
|
|
| 1,434,717 |
|
|
|
| 6,200 |
|
|
|
| — |
|
|
|
| 1,446,354 |
|
Other assets |
|
|
| 68,346 |
|
|
|
| 1,717,934 |
|
|
|
| 33,425 |
|
|
|
| (81,776 | ) |
|
|
| 1,737,929 |
|
Total assets |
| $ |
| 2,722,018 |
|
| $ |
| 3,500,733 |
|
| $ |
| 98,035 |
|
| $ |
| (2,735,529 | ) |
| $ |
| 3,585,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
| $ |
| 15,439 |
|
| $ |
| 182,755 |
|
| $ |
| 26,881 |
|
| $ |
| — |
|
| $ |
| 225,075 |
|
Intercompany payables |
|
|
| — |
|
|
|
| 341,713 |
|
|
|
| — |
|
|
|
| (341,713 | ) |
|
|
| — |
|
Long-term debt, less current maturities |
|
|
| 1,848,573 |
|
|
|
| 350,008 |
|
|
|
| 25,473 |
|
|
|
| — |
|
|
|
| 2,224,054 |
|
Deferred income tax liabilities |
|
|
| — |
|
|
|
| 333,754 |
|
|
|
| — |
|
|
|
| (81,776 | ) |
|
|
| 251,978 |
|
Other accrued liabilities |
|
|
| 4,083 |
|
|
|
| 20,792 |
|
|
|
| 5,340 |
|
|
|
| — |
|
|
|
| 30,215 |
|
Stockholders’ equity |
|
|
| 853,923 |
|
|
|
| 2,271,711 |
|
|
|
| 40,341 |
|
|
|
| (2,312,040 | ) |
|
|
| 853,935 |
|
Total liabilities and stockholders’ equity |
| $ |
| 2,722,018 |
|
| $ |
| 3,500,733 |
|
| $ |
| 98,035 |
|
| $ |
| (2,735,529 | ) |
| $ |
| 3,585,257 |
|
The consolidating condensed balance sheet as of December 31, 2016 is as follows:
Balance Sheet |
| Eldorado Resorts, Inc. (Parent Obligor) |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Consolidating and Eliminating Entries |
|
| Eldorado Resorts, Inc. Consolidated |
| ||||||||||
Current assets |
| $ |
| 1,800 |
|
| $ |
| 99,554 |
|
| $ |
| 399 |
|
| $ |
| — |
|
| $ |
| 101,753 |
|
Intercompany receivables |
|
|
| 388,050 |
|
|
|
| — |
|
|
|
| 1,186 |
|
|
|
| (389,236 | ) |
|
|
| — |
|
Investments in subsidiaries |
|
|
| 299,437 |
|
|
|
| 808,923 |
|
|
|
| — |
|
|
|
| (1,108,360 | ) |
|
|
| — |
|
Property and equipment, net |
|
|
| 1,965 |
|
|
|
| 610,377 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 612,342 |
|
Other assets |
|
|
| 50,591 |
|
|
|
| 585,892 |
|
|
|
| 11 |
|
|
|
| (56,545 | ) |
|
|
| 579,949 |
|
Total assets |
| $ |
| 741,843 |
|
| $ |
| 2,104,746 |
|
| $ |
| 1,596 |
|
| $ |
| (1,554,141 | ) |
| $ |
| 1,294,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
| $ |
| 22,759 |
|
| $ |
| 79,265 |
|
| $ |
| 16 |
|
| $ |
| — |
|
| $ |
| 102,040 |
|
Intercompany payables |
|
|
| — |
|
|
|
| 389,236 |
|
|
|
| — |
|
|
|
| (389,236 | ) |
|
|
| — |
|
Long-term debt, less current maturities |
|
|
| 420,633 |
|
|
|
| 375,248 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 795,881 |
|
Deferred income tax liabilities |
|
|
| — |
|
|
|
| 146,930 |
|
|
|
| — |
|
|
|
| (56,545 | ) |
|
|
| 90,385 |
|
Other accrued liabilities |
|
|
| 12 |
|
|
|
| 7,275 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 7,287 |
|
Stockholders’ equity |
|
|
| 298,439 |
|
|
|
| 1,106,792 |
|
|
|
| 1,580 |
|
|
|
| (1,108,360 | ) |
|
|
| 298,451 |
|
Total liabilities and stockholders’ equity |
| $ |
| 741,843 |
|
| $ |
| 2,104,746 |
|
| $ |
| 1,596 |
|
| $ |
| (1,554,141 | ) |
| $ |
| 1,294,044 |
|
The consolidating condensed statement of operations for the nine months ended September 30, 2017 is as follows:
|
| Eldorado Resorts, Inc. (Parent Obligor) |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Consolidating and Eliminating Entries |
|
| Eldorado Resorts, Inc. Consolidated |
| ||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming and pari-mutuel commissions |
| $ |
| — |
|
| $ |
| 820,452 |
|
| $ |
| 15,326 |
|
| $ |
| — |
|
| $ |
| 835,778 |
|
Non-gaming |
|
|
| — |
|
|
|
| 248,034 |
|
|
|
| 4,942 |
|
|
|
| — |
|
|
|
| 252,976 |
|
Gross revenues |
|
|
| — |
|
|
|
| 1,068,486 |
|
|
|
| 20,268 |
|
|
|
| — |
|
|
|
| 1,088,754 |
|
Less promotional allowances |
|
|
| — |
|
|
|
| (86,858 | ) |
|
|
| (918 | ) |
|
|
| — |
|
|
|
| (87,776 | ) |
Net revenues |
|
|
| — |
|
|
|
| 981,628 |
|
|
|
| 19,350 |
|
|
|
| — |
|
|
|
| 1,000,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming and pari-mutuel commissions |
|
|
| — |
|
|
|
| 427,680 |
|
|
|
| 10,656 |
|
|
|
| — |
|
|
|
| 438,336 |
|
Non-gaming |
|
|
| — |
|
|
|
| 109,518 |
|
|
|
| 649 |
|
|
|
| — |
|
|
|
| 110,167 |
|
Marketing and promotions |
|
|
| — |
|
|
|
| 53,401 |
|
|
|
| 1,444 |
|
|
|
| — |
|
|
|
| 54,845 |
|
General and administrative |
|
|
| — |
|
|
|
| 152,717 |
|
|
|
| 3,061 |
|
|
|
| — |
|
|
|
| 155,778 |
|
Corporate |
|
|
| 21,413 |
|
|
|
| (1,791 | ) |
|
|
| 2,112 |
|
|
|
| — |
|
|
|
| 21,734 |
|
Management fee |
|
|
| (20,064 | ) |
|
|
| 19,564 |
|
|
|
| 500 |
|
|
|
| — |
|
|
|
| — |
|
Depreciation and amortization |
|
|
| 635 |
|
|
|
| 68,767 |
|
|
|
| 233 |
|
|
|
| — |
|
|
|
| 69,635 |
|
Total operating expenses |
|
|
| 1,984 |
|
|
|
| 829,856 |
|
|
|
| 18,655 |
|
|
|
| — |
|
|
|
| 850,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of asset or disposal of property |
|
|
| (21 | ) |
|
|
| (30 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (51 | ) |
Acquisition charges |
|
|
| (69,628 | ) |
|
|
| (19,544 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (89,172 | ) |
Equity in loss of unconsolidated affiliate |
|
|
| — |
|
|
|
| (305 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (305 | ) |
Operating (loss) income |
|
|
| (71,633 | ) |
|
|
| 131,893 |
|
|
|
| 695 |
|
|
|
| — |
|
|
|
| 60,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
| (49,576 | ) |
|
|
| (19,110 | ) |
|
|
| (694 | ) |
|
|
| — |
|
|
|
| (69,380 | ) |
Loss on early retirement of debt, net |
|
|
| (37,347 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (37,347 | ) |
Subsidiary income (loss) |
|
|
| 77,197 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (77,197 | ) |
|
|
| — |
|
(Loss) income before income taxes |
|
|
| (81,359 | ) |
|
|
| 112,783 |
|
|
|
| 1 |
|
|
|
| (77,197 | ) |
|
|
| (45,772 | ) |
Income tax benefit (provision) |
|
|
| 64,455 |
|
|
|
| (36,896 | ) |
|
|
| 66 |
|
|
|
| — |
|
|
|
| 27,625 |
|
Income (loss) from continuing operations |
|
|
| (16,904 | ) |
|
|
| 75,887 |
|
|
|
| 67 |
|
|
|
| (77,197 | ) |
|
|
| (18,147 | ) |
Income from discontinued operations, net of taxes |
|
|
| 1,150 |
|
|
|
| 1,243 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 2,393 |
|
Net income (loss) |
| $ |
| (15,754 | ) |
| $ |
| 77,130 |
|
| $ |
| 67 |
|
| $ |
| (77,197 | ) |
| $ |
| (15,754 | ) |
The consolidating condensed statement of operations for the nine months ended September 30, 2016 is as follows:
|
| Eldorado Resorts, Inc. (Parent Obligor) |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Consolidating and Eliminating Entries |
|
| Eldorado Resorts, Inc. Consolidated |
| ||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming and pari-mutuel commissions |
| $ |
| — |
|
| $ |
| 539,010 |
|
| $ |
| 235 |
|
| $ |
| — |
|
| $ |
| 539,245 |
|
Non-gaming |
|
|
| — |
|
|
|
| 216,473 |
|
|
|
| 99 |
|
|
|
| — |
|
|
|
| 216,572 |
|
Gross revenues |
|
|
| — |
|
|
|
| 755,483 |
|
|
|
| 334 |
|
|
|
| — |
|
|
|
| 755,817 |
|
Less promotional allowances |
|
|
| — |
|
|
|
| (69,371 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (69,371 | ) |
Net revenues |
|
|
| — |
|
|
|
| 686,112 |
|
|
|
| 334 |
|
|
|
| — |
|
|
|
| 686,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming and pari-mutuel commissions |
|
|
| — |
|
|
|
| 307,669 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 307,669 |
|
Non-gaming |
|
|
| — |
|
|
|
| 104,611 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 104,611 |
|
Marketing and promotions |
|
|
| — |
|
|
|
| 30,661 |
|
|
|
| 3 |
|
|
|
| — |
|
|
|
| 30,664 |
|
General and administrative |
|
|
| — |
|
|
|
| 98,129 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 98,129 |
|
Corporate |
|
|
| 15,414 |
|
|
|
| 270 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 15,684 |
|
Management fee |
|
|
| (15,496 | ) |
|
|
| 15,496 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
Depreciation and amortization |
|
|
| 330 |
|
|
|
| 47,267 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 47,597 |
|
Total operating expenses |
|
|
| 248 |
|
|
|
| 604,103 |
|
|
|
| 3 |
|
|
|
| — |
|
|
|
| 604,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of asset or disposal of property |
|
|
| — |
|
|
|
| (740 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (740 | ) |
Acquisition charges |
|
|
| (5,326 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (5,326 | ) |
Equity in income of unconsolidated affiliates |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
Operating (loss) income |
|
|
| (5,574 | ) |
|
|
| 81,269 |
|
|
|
| 331 |
|
|
|
| — |
|
|
|
| 76,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
| (18,607 | ) |
|
|
| (19,768 | ) |
|
|
|
|
|
|
|
| — |
|
|
|
| (38,375 | ) |
Loss on early retirement of debt |
|
|
| (155 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (155 | ) |
Subsidiary income (loss) |
|
|
| 61,814 |
|
|
|
|
|
|
|
|
| — |
|
|
|
| (61,814 | ) |
|
|
| — |
|
Income (loss) before income taxes |
|
|
| 37,478 |
|
|
|
| 61,501 |
|
|
|
| 331 |
|
|
|
| (61,814 | ) |
|
|
| 37,496 |
|
Income tax (provision) benefit |
|
|
| (13,636 | ) |
|
|
| (18 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (13,654 | ) |
Net income (loss) |
| $ |
| 23,842 |
|
| $ |
| 61,483 |
|
| $ |
| 331 |
|
| $ |
| (61,814 | ) |
| $ |
| 23,842 |
|
The consolidating condensed statement of cash flows for the nine months ended September 30, 2017 is as follows:
|
| Eldorado Resorts, Inc. (Parent Obligor) |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Consolidating and Eliminating Entries |
|
| Eldorado Resorts, Inc. Consolidated |
| ||||||||||
Net cash (used in) provided by operating activities |
| $ |
| (64,426 | ) |
| $ |
| 131,253 |
|
| $ |
| 5,004 |
|
| $ |
| — |
|
| $ |
| 71,831 |
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment, net |
|
|
| (4,128 | ) |
|
|
| (48,690 | ) |
|
|
| (363 | ) |
|
|
| — |
|
|
|
| (53,181 | ) |
Reimbursement of capital expenditures from West Virginia regulatory authorities |
|
|
| — |
|
|
|
| 251 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 251 |
|
Restricted cash |
|
|
| — |
|
|
|
| 1,649 |
|
|
|
| (32 | ) |
|
|
| — |
|
|
|
| 1,617 |
|
Net cash (used in) provided by business combinations |
|
|
| (1,385,978 | ) |
|
|
| 37,103 |
|
|
|
| 5,216 |
|
|
|
| — |
|
|
|
| (1,343,659 | ) |
Net cash used in investing activities |
|
|
| (1,390,106 | ) |
|
|
| (9,687 | ) |
|
|
| 4,821 |
|
|
|
| — |
|
|
|
| (1,394,972 | ) |
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of New Term Loan |
|
|
| 1,450,000 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 1,450,000 |
|
Proceeds from issuance of 6% Senior Notes |
|
|
| 875,000 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 875,000 |
|
Proceeds from issuance of New Revolving Credit Facility |
|
|
| 166,953 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 166,953 |
|
Payments on Term Loan |
|
|
| (1,062 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (1,062 | ) |
Payments on New Term Loan |
|
|
| (448,125 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (448,125 | ) |
Payments under New Revolving Credit Facility |
|
|
| (166,953 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (166,953 | ) |
Borrowings under Revolving Credit Facility |
|
|
| 41,000 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 41,000 |
|
Payments under Revolving Credit Facility |
|
|
| (29,000 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (29,000 | ) |
Retirement of Term Loan |
|
|
| (417,563 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (417,563 | ) |
Retirement of Revolving Credit Facility |
|
|
| (41,000 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (41,000 | ) |
Debt premium proceeds |
|
|
| 27,500 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 27,500 |
|
Payment of other long-term obligation |
|
|
| (23 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (23 | ) |
Payments on capital leases |
|
|
| — |
|
|
|
| (242 | ) |
|
|
| (105 | ) |
|
|
| — |
|
|
|
| (347 | ) |
Debt issuance costs |
|
|
| (51,338 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (51,338 | ) |
Taxes paid related to net share settlement of equity awards |
|
|
| (10,927 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (10,927 | ) |
Net proceeds from (payments to) related parties |
|
|
| 72,129 |
|
|
|
| (67,904 | ) |
|
|
| (4,225 | ) |
|
|
| — |
|
|
|
| — |
|
Proceeds from exercise of stock options |
|
|
| 2,900 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 2,900 |
|
Net cash provided by (used in) financing activities |
|
|
| 1,469,491 |
|
|
|
| (68,146 | ) |
|
|
| (4,330 | ) |
|
|
| — |
|
|
|
| 1,397,015 |
|
INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
| 14,959 |
|
|
|
| 53,420 |
|
|
|
| 5,495 |
|
|
|
| — |
|
|
|
| 73,874 |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
|
|
| 812 |
|
|
|
| 59,885 |
|
|
|
| 332 |
|
|
|
| — |
|
|
|
| 61,029 |
|
CASH AND CASH EQUIVALENTS, END OF YEAR |
| $ |
| 15,771 |
|
| $ |
| 113,305 |
|
| $ |
| 5,827 |
|
| $ |
| — |
|
| $ |
| 134,903 |
|
The consolidating condensed statement of cash flows for the nine months ended September 30, 2016 is as follows:
|
| Eldorado Resorts, Inc. (Parent Obligor) |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Consolidating and Eliminating Entries |
|
| Eldorado Resorts, Inc. Consolidated |
| ||||||||||
Net cash (used in) provided by operating activities |
| $ |
| (26,531 | ) |
| $ |
| 98,763 |
|
| $ |
| 18 |
|
| $ |
|
|
|
| $ |
| 72,250 |
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment, net |
|
|
| 6 |
|
|
|
| (32,945 | ) |
|
|
| (10 | ) |
|
|
| — |
|
|
|
| (32,949 | ) |
Reimbursement of capital expenditures from West Virginia regulatory authorities |
|
|
| — |
|
|
|
| 4,113 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 4,113 |
|
Proceeds from sale of property and equipment |
|
|
| — |
|
|
|
| 1,560 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 1,560 |
|
Net cash used in business combinations |
|
|
| (491 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (491 | ) |
Increase in other assets |
|
|
| — |
|
|
|
| 564 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 564 |
|
Net cash used in investing activities |
|
|
| (485 | ) |
|
|
| (26,708 | ) |
|
|
| (10 | ) |
|
|
| — |
|
|
|
| (27,203 | ) |
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments under Term Loan |
|
|
| (3,188 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (3,188 | ) |
Payments under Revolving Credit Facility |
|
|
| (74,500 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (74,500 | ) |
Payments on capital leases |
|
|
| — |
|
|
|
| (204 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (204 | ) |
Debt issuance costs |
|
|
| (463 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (463 | ) |
Taxes paid related to net share settlement of equity awards |
|
|
| (1,366 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (1,366 | ) |
Proceeds from exercise of stock options |
|
|
| 1,005 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 1,005 |
|
Net payments to related parties |
|
|
| 108,181 |
|
|
|
| (108,249 | ) |
|
|
| 68 |
|
|
|
| — |
|
|
|
| — |
|
Net cash provided by (used in) financing activities |
|
|
| 29,669 |
|
|
|
| (108,453 | ) |
|
|
| 68 |
|
|
|
| — |
|
|
|
| (78,716 | ) |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
| 2,653 |
|
|
|
| (36,398 | ) |
|
|
| 76 |
|
|
|
| — |
|
|
|
| (33,669 | ) |
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
|
|
| 657 |
|
|
|
| 77,453 |
|
|
|
| 168 |
|
|
|
| — |
|
|
|
| 78,278 |
|
CASH AND CASH EQUIVALENTS, END OF YEAR |
| $ |
| 3,310 |
|
| $ |
| 41,055 |
|
| $ |
| 244 |
|
| $ |
| — |
|
| $ |
| 44,609 |
|
|
|
|
|
|
|
|
|
|
| As of |
| As of |
| ||
|
| September 30, |
| December 31, |
| ||
|
| 2016 |
| 2015 |
| ||
|
| (unaudited) |
|
|
|
| |
|
| (in thousands) |
| ||||
Total Assets |
|
|
|
|
|
|
|
Nevada |
| $ | 361,362 |
| $ | 376,760 |
|
Louisiana |
|
| 128,690 |
|
| 135,403 |
|
Eastern |
|
| 848,463 |
|
| 883,344 |
|
Corporate |
|
| 382,650 |
|
| 495,202 |
|
Eliminating entries (1) |
|
| (442,291) |
|
| (565,701) |
|
Total |
| $ | 1,278,874 |
| $ | 1,325,008 |
|
|
|
|
|
|
|
|
|
(1) Reflects the following eliminations for the periods indicated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivables/payables, inclusive of allocated interest |
| $ | 284,744 |
| $ | 406,325 |
|
Net investment in Silver Legacy/Circus Reno |
|
| 88,314 |
|
| 88,314 |
|
Net investment in and advances to Silver Legacy |
|
| 56,500 |
|
| 56,500 |
|
Net investment in and advances to Eldorado Shreveport |
|
| 7,733 |
|
| 8,482 |
|
Net investment in MTR |
|
| 5,000 |
|
| 5,000 |
|
Reclass deferred tax assets against deferred tax liabilities |
|
| — |
|
| 1,080 |
|
|
| $ | 442,291 |
| $ | 565,701 |
|
23
General
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
General
Eldorado Resorts, Inc. (“ERI” or the “Company”), a Nevada corporation, was formed in September 2013 to be the parent company following the merger of wholly-owned subsidiaries of the Company into Eldorado HoldCo LLC (“HoldCo”), a Nevada limited liability company formed in 2009 that is the parent company of Eldorado Resorts LLC (“Resorts”), and MTR Gaming Group, Inc. (“MTR Gaming”), a Delaware corporation incorporated in 1988 (the “Merger”). Effective upon the consummation of the Merger on September 19, 2014 (the “Merger Date”), MTR Gaming and HoldCo each became a wholly-owned subsidiary of ERI and, as a result of such transactions, Resorts became an indirect wholly-owned subsidiary of ERI.
Resorts owns and operates the Eldorado Resort Casino Reno, a premier hotel, casino and entertainment facility centrally located in downtown Reno, Nevada (“Eldorado Reno”), which opened for business in 1973. Resorts also owns Eldorado Resort Casino Shreveport (“Eldorado Shreveport”), a 403‑room all suite art deco‑style hotel and a tri‑level riverboat dockside casino complex situated on the Red River in Shreveport, Louisiana, which commenced operations under its previous owners in December 2000.
Prior to November 24, 2015 (the “Reno Acquisition Date”), Resorts owned a 48.1% interest in the joint venture (the “Silver Legacy Joint Venture”) which owns the Silver Legacy Resort Casino (“Silver Legacy”), a major themed hotel and casino situated between and seamlessly connected at the mezzanine level to the Eldorado Reno and Circus Reno, (collectively, the “Reno Tri-Properties”), a hotel and casino previously owned and operated by Galleon, Inc., an indirect, wholly-owned subsidiary of MGM Resorts International.
On the Reno Acquisition Date, Resorts consummated the acquisition of all of the assets and properties of Circus Circus Reno (“Circus Reno”) and the 50% membership interest in the Silver Legacy Joint Venture owned by Galleon, Inc. (collectively, the “Circus Reno/Silver Legacy Purchase” or the “Reno Acquisition”) pursuant to a Purchase and Sale Agreement, dated as of July 7, 2015 (the “Purchase Agreement”), entered into by certain of our subsidiaries with Circus Circus Casinos, Inc. and Galleon, Inc., each an affiliate of MGM Resorts International, with respect to the acquisition. On the Reno Acquisition Date, Resorts also exercised its right to acquire the 3.8% interest in Eldorado Limited Liability Company (“ELLC”) held by certain affiliates and shareholders of the Company. As a result of these transactions, ELLC and CC-Reno, LLC, a newly formed Nevada limited liability company, became wholly-owned subsidiaries of ERI, and Silver Legacy became an indirect wholly‑owned subsidiary of ERI.
MTR Gaming operates as a hospitality and gaming company with racetrack, gaming and hotel properties in West Virginia, Pennsylvania and Ohio. MTR Gaming, through its wholly-owned subsidiaries, owns and operates Mountaineer Casino, Racetrack & Resort in Chester, West Virginia (“Mountaineer”), Presque Isle Downs & Casino in Erie, Pennsylvania (“Presque Isle Downs”), and Eldorado Gaming Scioto Downs (“Scioto Downs”) in Columbus, Ohio. Scioto Downs, through its subsidiary, RacelineBet, Inc., also operates Racelinebet.com, a national account wagering service that offers online and telephone wagering on horse races as a marketing affiliate of TwinSpires.com, an affiliate of Churchill Downs, Inc.
Presentation of Financial Information
2013. ERI and its subsidiaries are collectively referred to as “we,” “us,” “our” or the “Company.” The Company acquired Mountaineer, Presque Isle Downs and Scioto Downs in September 2014 pursuant to a merger (the “MTR Merger”) with MTR Gaming Group, Inc. (“MTR Gaming”) and in November 2015 we acquired Circus Reno and the interests in the Silver Legacy that we did not own prior to such date (the “Reno Acquisition”).
Throughout the three and nine months ended September 30, 2017, ERI owned and operated the following properties:
Eldorado Resort Casino Reno (“Eldorado Reno”)—A 814-room hotel, casino and entertainment facility connected via an enclosed skywalk to Silver Legacy and Circus Reno located in downtown Reno, Nevada that includes 1,125 slot machines and 46 table games;
Silver Legacy Resort Casino (“Silver Legacy”)—A 1,711-room themed hotel and casino connected via an enclosed skywalk to Eldorado Reno and Circus Reno that includes 1,187 slot machines, 63 table games and a 13 table poker room;
Circus Circus Reno (“Circus Reno”)—A 1,571-room hotel-casino and entertainment complex connected via an enclosed skywalk to Eldorado Reno and Silver Legacy that includes 720 slot machines and 26 table games;
Eldorado Resort Casino Shreveport (“Eldorado Shreveport”)—A 403-room, all suite art deco-style hotel and tri-level riverboat dockside casino situated on the Red River in Shreveport, Louisiana that includes 1,397 slot machines, 52 table games and an eight table poker room;
Mountaineer Casino, Racetrack & Resort (“Mountaineer”)—A 357-room hotel, casino and entertainment facility and live thoroughbred horse racing located on the Ohio River at the northern tip of West Virginia’s northwestern panhandle that includes 1,505 slot machines, 36 table games and a 10 table poker room;
Presque Isle Downs & Casino (“Presque Isle Downs”)—A casino and live thoroughbred horse racing facility with 1,596 slot machines, 32 table games and a seven table poker room located in Erie, Pennsylvania; and
Eldorado Gaming Scioto Downs (“Scioto Downs”)—A modern “racino” offering 2,245 video lottery terminals (“VLT”), harness racing and a 118-room third party hotel connected to Scioto Downs located 15 minutes from downtown Columbus, Ohio.
In addition, on May 1, 2017, the Company consummated its acquisition of Isle of Capri Casinos, Inc. and acquired the following properties:
Isle Casino Hotel—Black Hawk (“Isle Black Hawk”)—A land-based casino on an approximately 10-acre site in Black Hawk, Colorado that includes 993 slot machines, 27 table games, a nine table poker room and a 238-room hotel;
Lady Luck Casino—Black Hawk (“Lady Luck Black Hawk”)—A land-based casino across the intersection from Isle Casino Hotel in Black Hawk, Colorado, that includes 430 slot machines, 10 table games, five poker tables and a 164-room hotel with a parking structure connecting Isle Casino Hotel-Black Hawk and Lady Luck Casino-Black Hawk;
Isle Casino Racing Pompano Park (“Pompano”)—A casino and harness racing track on an approximately 223-acre owned site in Pompano Beach, Florida, that includes 1,459 slot machines and a 45 table poker room;
Isle Casino Bettendorf (“Bettendorf”)—A land-based single-level casino located off of Interstate 74 in Bettendorf, Iowa that includes 978 slot machines and 20 table games with two hotel towers with 509 hotel rooms;
Isle Casino Waterloo (“Waterloo”)—A single-level land-based casino in Waterloo, Iowa that includes 940 slot machines, 25 table games and a 194-room hotel;
Isle of Capri Casino Hotel Lake Charles (“Lake Charles”)—A gaming vessel on an approximately 19 acre site in Lake Charles, Louisiana, with 1,160 slot machines, 49 table games, including 13 poker tables and two hotels offering 493 rooms;
Isle of Capri Casino Lula (“Lula”)—Two dockside casinos in Lula, Mississippi with 879 slot machines and 20 table games, two on-site hotels with a total of 486 rooms and a 28-space RV Park;
Lady Luck Casino Vicksburg (“Vicksburg”)—A dockside casino in Vicksburg, Mississippi that includes 619 slot machines, nine table games and a hotel with a total of 89 rooms;
• | Isle of Capri Casino Boonville (“Boonville”)—A single-level dockside casino in Boonville, Missouri that includes 893 slot machines, 20 table games and a 140-room hotel; |
Isle Casino Cape Girardeau (“Cape Girardeau”)—A dockside casino and pavilion and entertainment center in Cape Girardeau, Missouri that includes 881 slot machines, 20 table games and four poker tables;
Lady Luck Casino Caruthersville (“Caruthersville”)—A riverboat casino located along the Mississippi River in Caruthersville, Missouri that includes 513 slot machines and nine table games;
Isle of Capri Casino Kansas City (“Kansas City”)—A dockside casino located close to downtown Kansas City, Missouri offering 967 slot machines and 18 table games; and
Lady Luck Casino Nemacolin (“Nemacolin”)—A casino property located on the 2,000-acre Nemacolin Woodlands Resort in Western Pennsylvania that includes 600 slot machines and 28 table games.
On August 22, 2016, Isle entered into an agreement to sell Lake Charles for aggregate consideration of $134.5 million, subject to certain adjustments. The transaction (the “Lake Charles Disposition”) remains subject to Louisiana Gaming Control Board approval and other customary closing conditions and, if obtained, the transaction is expected to be completed by December 31, 2017.
Acquisition of Isle of Capri Casinos, Inc.
On May 1, 2017 (the “Isle Acquisition Date”), the Company completed its acquisition of Isle of Capri Casinos, Inc. pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) dated as of September 19, 2016 with Isle of Capri Casinos, Inc., a Delaware corporation (“Isle” or “Isle of Capri”), Eagle I Acquisition Corp., a Delaware corporation and a direct wholly-owned subsidiary of the Company, and Eagle II Acquisition Company LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of the Company (the “Isle Acquisition” or the “Isle Merger”). As a result of the Isle Merger, Isle became a wholly-owned subsidiary of ERI and, at the effective time of the Isle Merger, each outstanding share of Isle’s stock converted into the right to receive $23.00 in cash or 1.638 shares of ERI common stock (the “Stock Consideration”), at the election of the applicable Isle shareholder and subject to proration such that the outstanding shares of Isle common stock were exchanged for aggregate consideration comprised of 58% cash, or $552.0 million, and 42% ERI common stock, or 28.5 million newly issued shares of ERI common stock. The total purchase consideration was $1.93 billion.
In connection with the Isle Acquisition, the Company completed a debt financing transaction comprised of: (a) a senior secured credit facility in an aggregate principal amount of $1.75 billion with a (i) term loan facility of $1.45 billion and (ii) revolving credit facility of $300.0 million and (b) $375.0 million of senior unsecured notes. The proceeds of such borrowings were used (v) to pay the cash portion of the consideration payable in the Isle Merger, (w) refinance all of Isle’s existing credit facilities, (x) redeem or otherwise repurchase all of Isle’s senior and senior subordinated notes, (y) refinance the Company’s existing credit facility and (z) pay transaction fees and expenses related to the foregoing.
The financial information included in this Item 2 for periods prior to the Reno Acquisition DateIsle Merger are those of the CompanyERI and its subsidiaries including Eldorado Reno, Eldorado Shreveport, MTR Gaming and its interest in the Silver Legacy Joint Venture.
subsidiaries. The presentation of information herein for periods prior to the periodIsle Merger and after the Reno Acquisition Date isIsle Merger are not fully comparable because the results of operations for Circus RenoIsle are not included for the periodperiods prior to the Reno Acquisition Date and theIsle Merger. Summary financial results of operationsIsle for the three and nine months ended January 22, 2017 are included in Isle’s Quarterly Report on Form 10-Q as filed with the Securities and Exchange Commission (‘‘SEC’’). In conjunction with the Isle Acquisition, Isle is no longer required to file quarterly and annual reports with the SEC, and terminated its registration on May 11, 2017.
The executive decision maker of our Company reviews operating results, assess performance and make decisions on a “significant market” basis. The Company’s management views each of its properties as an operating segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, the regulatory environments in which they operate, and their management and reporting structure. Prior to the Isle Acquisition, the Company’s principal operating activities occurred in three geographic regions: Nevada, Louisiana and parts of the Silver Legacy Joint Venture were not consolidated prior to the Reno Acquisition Date.
Reportable Segments
eastern United States. The Company has aggregated its operating segmentsoperations into three reportable segments: Eldorado Reno, segments based on the similar characteristics of the operating segments within the regions in which they operated as follows:
Segment | Property | State | ||
Nevada | Eldorado Reno | Nevada | ||
Silver Legacy | Nevada | |||
Circus Reno | Nevada | |||
Louisiana | Eldorado Shreveport | Louisiana | ||
Eastern | Presque Isle Downs | Pennsylvania | ||
Scioto Downs | Ohio | |||
Mountaineer | West Virginia |
Following the Isle Acquisition, the Company’s principal operating activities expanded and now occur in four geographic regions and reportable segments based on the similar characteristics of the operating segments within the regions in which they operate. The following table summarizes our current segments:
Segment | Property | State | ||
West | Eldorado Reno | Nevada | ||
Silver Legacy | Nevada | |||
Circus Reno | Nevada | |||
Isle Black Hawk | Colorado | |||
Lady Luck Black Hawk | Colorado | |||
Midwest | Waterloo | Iowa | ||
Bettendorf | Iowa | |||
Boonville | Missouri | |||
Cape Girardeau | Missouri | |||
Caruthersville | Missouri | |||
Kansas City | Missouri | |||
South | Pompano | Florida | ||
Eldorado Shreveport | Louisiana | |||
Lula | Mississippi | |||
Vicksburg | Mississippi | |||
East | Presque Isle Downs | Pennsylvania | ||
Nemacolin | Pennsylvania | |||
Scioto Downs | Ohio | |||
Mountaineer | West Virginia |
Key Performance Metrics
Our primary source of revenue is generated by our gaming operations, but we use our hotels, restaurants, bars, entertainment, retail shops, racing and other services to attract customers to our properties. Our operating results are highly dependent on the volume of customers visiting and staying at our properties. Key performance metrics include volume indicators such as Nevada, Eldorado Shreveporttable games drop and slot handle, which refer to amounts wagered by our customers. The amount of volume we retain, which is not fully controllable by us, is recognized as Louisiana,casino revenues and Scioto Downs, Presque Isle Downsis referred to as our win or hold. In addition, hotel occupancy and Mountaineerprice per room designated by average daily rate (“ADR”) are key indicators for our hotel business. Our calculation of ADR consists of the average price of occupied
rooms per day including the impact of resort fees and complimentary rooms. Complimentary room rates are determined based on an analysis of retail or cash rates for each customer segment and each type of room product to estimate complimentary rates which are consistent with retail rates. Complimentary rates are reviewed at least annually and on an interim basis if there are significant changes in market conditions. Complimentary rooms are treated as Eastern.
24
Tableoccupied rooms in our calculation of Contentshotel occupancy.
Significant Factors Impacting Financial Results
The following summary highlights the significant factors impacting our financial results for the three and nine months ended September 30, 20162017 and 2015.2016.
Isle Acquisition – Our results of continuing operations for the three and nine months ended September 30, 2017 include incremental revenues and expenses for five months (May through September 2017) attributable to the twelve properties we acquired in the Isle Acquisition.
Acquisition charges related to the Isle Acquisition for legal, accounting, financial advisory services, severance, stock awards and other costs totaled $2.1 million and $89.2 million for the three and nine months ended September 30, 2017, respectively, and $0.1 million and $0.6 million for the three and nine months ended September 30, 2016.
Upon completion of the Isle Acquisition, the Company will add 12 additional properties to its portfolio. On August 22, 2016, Isle entered into an agreement to sell Isle of Capri Casino Hotel Lake Charles for aggregate consideration of $134.5 million, subject to certain adjustments. On October 13, 2016, Isle entered into an agreement to sell Lady Luck Casino Marquette for cash consideration of approximately $40.0 million, subject to certain adjustments.
|
|
25
|
|
On September 13, 2017, we issued an additional $500 million in aggregate principal amount of 6% Senior Notes at an issue price equal to 105.5% of the principal amount. We used the proceeds of the offering to repay all of the outstanding borrowings under the New Revolving Credit Facility totaling $78.0 million and used the remainder to repay outstanding borrowings totaling $444.5 million under the New Term Loan plus related accrued interest. We recognized a loss of $10.0 million for the three months ended September 30, 2017 as a result of the issuance of additional debt and retirement of existing debt.
|
|
Severe Weather – During the third quarter of 2017, Hurricanes Harvey and Irma negatively impacted our South region, specifically our Pompano and Eldorado Shreveport properties, and made travel to those properties impossible or difficult. While Pompano did not sustain any major physical damage, we incurred incremental expenses as a result of the storms and were forced to close the casino for four days and experienced disruption to our business for a longer period of time.
Our West segment’s operations are subject to seasonal variation, with our lowest business volume generally occurring during the winter months. The northern Nevada region experienced record snowfall and severe weather conditions, including major snow storms during eleven of the fourteen weekends in the 2017 first quarter, making travel to Reno from northern California, our main feeder market, difficult or impossible due to road closures. As a result, there was a significant adverse effect on business levels, especially hotel occupancy and gaming volume, and our operating performance for the nine months ended September 30, 2017 compared to the same prior year period.
|
|
Execution of Cost Savings Program – We continue to identify areas to improve property level and consolidated margins through operating and cost efficiencies and exercising financial discipline throughout the Company without impacting the guest experience. In addition to cost savings relating to duplicative executive compensation, legal and accounting fees and other corporate expenses that have continued our propertybeen eliminated as a result of the MTR Merger, Reno Acquisition and Isle Acquisition, we have achieved savings in marketing, food and beverage costs, selling, general and administrative expenses, and other operating departments as a result of operating efficiencies and purchasing power of the combined Eldorado organization.
Property Enhancement Capital Expenditures – Property enhancement initiatives in 2016.continued throughout 2016 and into 2017. At Presque Isle Downs, we opened a The Brew Brothers in May 2016 and an escalator in July to improve traffic flow to the restaurant. OnIn June 30, 2016, we opened a second smoking patio at Scioto Downs which features a casino bar and 119 new VLTs. Construction continues on the 118-room Hampton Inn Hotel at Scioto Downs and is expected to open in the first quarter of 2017. In Shreveport, we are remodelingcompleted the remodel of the second floor of the casino which is expected to be completed in the fourth quarter ofDecember 2016 and expect to addadded approximately 20 new slot machines by the end of 2016.machines. We continue to evaluateimproved the offerings at Mountaineer with a goal of maintaining a positive customer experience while right sizing the property to maximize free cash flow and operational efficiencies.
In September 2016, the Company announced that it plans to invest more than $50 million in facility enhancements to Eldorado Reno, Silver Legacy and Circus Reno. Eldorado’s master plan for the three connected properties, which span eight city blocks in downtown Reno, will be phased over three years, and commenced in the fourth quarter of 2016. In
addition to the renovation of over 4,100our guest rooms across the Tri-Properties, each of the three resorts will introduce new restaurant concepts, reinvigorated nightlife and resort amenities, including a new full service luxury spa. The $50 million investment will allow the further integration of the guest experience among the Reno Tri-Properties to deliver an enhanced and seamless resort environment.amenities. In September 2016, Silver Legacy opened a new $2.0 million 8,500 square foot sports book. Also, scheduled to open in the fourth quarter of 2016, is awe completed the renovation of the Carnival Midway and opened El Jefe’s Cantina Mexican restaurant and bar at Circus Reno. We also opened Hidden Pizza, a New York style pizza restaurant, at Eldorado Reno.
Throughout 2017, capital improvements continued at the Tri-Properties including the renovation of approximately 600 guest rooms at Circus Reno and 153 rooms at Eldorado Reno. Property enhancements that are either already completed or that are expected to come online prior to the end of 2017 include a new poker room and Canter’s Delicatessen at Silver Legacy, new food court with Habit Burger®, Piezzetta Pizza Kitchen® and Panda Express®, 6,700 square foot video arcade, party rooms and bar, renovation of approximately 648 guest rooms, Kanpai Sushi and a new Madame Butterworks Curious Café at Circus Reno, the addition of Starbucks café and showroom renovation at Eldorado Reno and new public spaces across all three properties.
A 118-room Hampton Inn Hotel at Scioto Downs developed by a third party opened on March 2017 and since opening continues to drive visitation and spend at the property.
With the completion of the Isle Acquisition, we continue to evaluate capital improvement plans across the newly acquired properties.
New York style pizza restaurant.
|
|
26
Results of Operations
The following table highlights the results of our operations (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
|
| Three Months Ended |
|
|
| Nine Months Ended |
|
|
|
|
| Three Months Ended |
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
| |||||||||||||||||||||||
|
| September 30, |
|
|
| September 30, |
|
|
|
| September 30, |
|
|
|
|
|
|
| September 30, |
|
|
|
|
|
| ||||||||||||||||||||||||
|
| 2016 |
| 2015 |
| % Change |
| 2016 |
| 2015 |
| % Change |
|
| 2017 |
|
| 2016 |
|
| % Change |
|
|
| 2017 |
|
| 2016 |
|
| % Change |
|
| ||||||||||||||||
Net revenues |
| $ | 241,565 |
| $ | 183,540 |
| 31.6 | % |
| $ | 686,446 |
| $ | 533,624 |
| 28.6 | % |
|
| $ |
| 444,874 |
|
| $ |
| 241,565 |
|
|
| 84.2 |
| % |
| $ |
| 1,000,978 |
|
| $ |
| 686,446 |
|
|
| 45.8 |
| % |
Operating income |
|
| 28,109 |
|
| 24,092 |
| 16.7 | % |
|
| 76,026 |
|
| 59,235 |
| 28.3 | % |
|
|
|
| 78,924 |
|
|
|
| 28,109 |
|
|
| 180.8 |
| % |
|
|
| 60,955 |
|
|
|
| 76,026 |
|
|
| (19.8 | ) | % |
Net income |
|
| 9,682 |
|
| 5,399 |
| 79.3 | % |
|
| 23,842 |
|
| 4,030 |
| 491.6 | % |
| ||||||||||||||||||||||||||||||
Net income (loss) |
|
|
| 29,554 |
|
|
|
| 9,682 |
|
|
| 205.2 |
| % |
|
|
| (15,754 | ) |
|
|
| 23,842 |
|
|
| (166.1 | ) | % |
Operating Results.Results Net. Isle contributed $201.1 million and $335.3 million of net revenues for the three months ended September 30, 2017 and the period from the Isle Acquisition Date through September 30, 2017, respectively, consisting primarily of gaming revenues. Including the incremental Isle net operating revenues, net revenues increased 31.6%84.2% and 28.6%45.8%, respectively, for the three and nine months ended September 30, 2016, respectively, over the same prior year periods primarily due to incremental revenues attributable to the aforementioned Reno Acquisition. These increases in net revenues were partially offset by decreases in net revenues in the Louisiana and Eastern segments.
Operating income increased 16.7% and 28.3% for the three and nine months ended September 30, 2016, respectively,2017 compared to the same prior year periods due to higher overall revenues combined with improved operating margins associated with company-wide cost savings initiatives and property enhancement capital expenditures.periods.
NetOperating income increased 79.3% and 491.6%180.8% for the three and nine months ended September 30, 2016, respectively,2017 compared to the same prior year periods as a resultperiod. This increase was primarily due to $39.0 million of operating income contributed by Isle for the three months ended September 30, 2017. Operating income decreased 19.8% for the nine months ended September 30, 2017 compared to the same prior year period. This decrease was primarily due to acquisition charges related to the Isle Acquisition totaling $89.2 million for the nine months ended September 30, 2017 and was partially offset by $46.3 million of operating income contributed by Isle for the period from the Isle Acquisition Date through September 30, 2017.
Net income increased 205.2% for the three months ended September 30, 2017 compared to the same prior year period due to the same factors impacting operating income. ForThis increase was partially offset by higher interest expense associated with additional debt in conjunction with the threeIsle Acquisition, the loss on the early retirement of debt recorded during the current period and by the recorded income tax provision of $11.6 million. Net income decreased 166.1% for the nine months ended September 30, 2016, net income was also favorably impacted by decreases in interest expense totaling $1.92017 compared to the same prior year period primarily due to $89.2 million and $10.6 million, respectively, resulting from our refinancing in July 2015 combined with significant debt reductions. This growth in net income for the three and nine months ended September 30, 2016 was partially offset byof acquisition charges of $4.8 million and $5.3 million, respectively, primarily related toassociated with the Isle Acquisition a $0.8 millioncombined with higher interest expense and the loss on the saleearly retirement of debt, offsetting incremental operating income and disposalincome tax benefit of a building and equipment related to the closure of a detached fitness center facility at Mountaineer and incremental depreciation associated with assets purchased in the Reno Acquisition.$27.6 million.
Net Revenues and Operating Income (Loss)
The following table highlights our net revenues and operating income (loss) by reportable segment (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Revenues for the Three Months Ended September 30, |
| Net Revenues for the Nine Months Ended September 30, |
| ||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||
Nevada |
| $ | 89,676 |
| $ | 29,002 |
| $ | 246,608 |
| $ | 79,961 |
|
Louisiana |
|
| 33,984 |
|
| 34,651 |
|
| 100,514 |
|
| 103,919 |
|
Eastern |
|
| 117,905 |
|
| 119,887 |
|
| 339,324 |
|
| 349,744 |
|
Corporate |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total |
| $ | 241,565 |
| $ | 183,540 |
| $ | 686,446 |
| $ | 533,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating Income (Loss) for the Three Months Ended September 30, |
| Operating Income (Loss) for the Nine Months Ended September 30, |
| ||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||
Nevada |
| $ | 15,606 |
| $ | 6,339 |
| $ | 34,825 |
| $ | 10,497 |
|
Louisiana |
|
| 6,703 |
|
| 5,801 |
|
| 18,746 |
|
| 17,056 |
|
Eastern |
|
| 15,102 |
|
| 16,152 |
|
| 43,767 |
|
| 44,467 |
|
Corporate |
|
| (9,302) |
|
| (4,200) |
|
| (21,312) |
|
| (12,785) |
|
Total |
| $ | 28,109 |
| $ | 24,092 |
| $ | 76,026 |
| $ | 59,235 |
|
27
|
| Net Revenues for the Three Months Ended September 30, |
|
| Net Revenues for the Nine Months Ended September 30, |
| ||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||||||
West |
| $ |
| 132,775 |
|
| $ |
| 89,676 |
|
| $ |
| 293,528 |
|
| $ |
| 246,608 |
|
Midwest |
|
|
| 103,510 |
|
|
|
| — |
|
|
|
| 171,015 |
|
|
|
| — |
|
South |
|
|
| 81,696 |
|
|
|
| 33,984 |
|
|
|
| 183,425 |
|
|
|
| 100,514 |
|
East |
|
|
| 126,720 |
|
|
|
| 117,905 |
|
|
|
| 352,644 |
|
|
|
| 339,324 |
|
Corporate |
|
|
| 173 |
|
|
|
| — |
|
|
|
| 366 |
|
|
|
| — |
|
Total |
| $ |
| 444,874 |
|
| $ |
| 241,565 |
|
| $ |
| 1,000,978 |
|
| $ |
| 686,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating Income (Loss) for the Three Months Ended September 30, |
|
| Operating Income (Loss) for the Nine Months Ended September 30, |
| ||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||||||
West |
| $ |
| 32,556 |
|
| $ |
| 15,606 |
|
| $ |
| 50,507 |
|
| $ |
| 34,825 |
|
Midwest |
|
|
| 24,261 |
|
|
|
| — |
|
|
|
| 39,669 |
|
|
|
| — |
|
South |
|
|
| 11,293 |
|
|
|
| 6,703 |
|
|
|
| 28,280 |
|
|
|
| 18,746 |
|
East |
|
|
| 21,140 |
|
|
|
| 15,102 |
|
|
|
| 54,333 |
|
|
|
| 43,767 |
|
Corporate |
|
|
| (10,326 | ) |
|
|
| (9,302 | ) |
|
|
| (111,834 | ) |
|
|
| (21,312 | ) |
Total |
| $ |
| 78,924 |
|
| $ |
| 28,109 |
|
| $ |
| 60,955 |
|
| $ |
| 76,026 |
|
Three Months Ended September 30, 20162017 Compared to the Three Months Ended September 30, 20152016
Net revenues and operating expenses were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| Three Months Ended |
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| September 30, |
|
|
|
|
|
|
| September 30, |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| 2016 |
| 2015 |
|
| Variance |
| Percent |
|
|
| 2017 |
|
| 2016 |
|
| Variance |
|
| Percent |
|
| |||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Gaming and Pari-Mutuel Commissions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Nevada |
| $ | 48,067 |
| $ | 17,313 |
| $ | 30,754 |
| 177.6 | % |
| ||||||||||||||||||||
Louisiana |
|
| 31,505 |
|
| 32,005 |
|
| (500) |
| (1.6) | % |
| ||||||||||||||||||||
Eastern |
|
| 108,559 |
|
| 110,820 |
|
| (2,261) |
| (2.0) | % |
| ||||||||||||||||||||
West |
| $ |
| 83,166 |
|
| $ |
| 48,067 |
|
| $ |
| 35,099 |
|
|
| 73.0 |
| % | |||||||||||||
Midwest |
|
|
| 96,330 |
|
|
|
| — |
|
|
|
| 96,330 |
|
|
| 100.0 |
| % | |||||||||||||
South |
|
|
| 76,279 |
|
|
|
| 31,505 |
|
|
|
| 44,774 |
|
|
| 142.1 |
| % | |||||||||||||
East |
|
|
| 117,317 |
|
|
|
| 108,559 |
|
|
|
| 8,758 |
|
|
| 8.1 |
| % | |||||||||||||
Total Gaming and Pari-Mutuel Commissions |
|
| 188,131 |
|
| 160,138 |
|
| 27,993 |
| 17.5 | % |
|
|
|
| 373,092 |
|
|
|
| 188,131 |
|
|
|
| 184,961 |
|
|
| 98.3 |
| % |
Non-gaming: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Nevada |
|
| 54,126 |
|
| 16,179 |
|
| 37,947 |
| 234.5 | % |
| ||||||||||||||||||||
Louisiana |
|
| 9,810 |
|
| 9,160 |
|
| 650 |
| 7.1 | % |
| ||||||||||||||||||||
Eastern |
|
| 14,189 |
|
| 14,059 |
|
| 130 |
| 0.9 | % |
| ||||||||||||||||||||
West |
|
|
| 67,185 |
|
|
|
| 54,126 |
|
|
|
| 13,059 |
|
|
| 24.1 |
| % | |||||||||||||
Midwest |
|
|
| 14,161 |
|
|
|
| — |
|
|
|
| 14,161 |
|
|
| 100.0 |
| % | |||||||||||||
South |
|
|
| 14,261 |
|
|
|
| 9,810 |
|
|
|
| 4,451 |
|
|
| 45.4 |
| % | |||||||||||||
East |
|
|
| 14,164 |
|
|
|
| 14,189 |
|
|
|
| (25 | ) |
|
| (0.2 | ) | % | |||||||||||||
Corporate |
|
|
| 173 |
|
|
|
| — |
|
|
|
| 173 |
|
|
| 100.0 |
| % | |||||||||||||
Total Non-gaming |
|
| 78,125 |
|
| 39,398 |
|
| 38,727 |
| 98.3 | % |
|
|
|
| 109,944 |
|
|
|
| 78,125 |
|
|
|
| 31,819 |
|
|
| 40.7 |
| % |
Total Gross Revenues |
|
| 266,256 |
|
| 199,536 |
|
| 66,720 |
| 33.4 | % |
|
|
|
| 483,036 |
|
|
|
| 266,256 |
|
|
|
| 216,780 |
|
|
| 81.4 |
| % |
Promotional allowances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Nevada |
|
| (12,517) |
|
| (4,490) |
|
| 8,027 |
| 178.8 | % |
| ||||||||||||||||||||
Louisiana |
|
| (7,331) |
|
| (6,514) |
|
| 817 |
| 12.5 | % |
| ||||||||||||||||||||
Eastern |
|
| (4,843) |
|
| (4,992) |
|
| (149) |
| (3.0) | % |
| ||||||||||||||||||||
West |
|
|
| (17,576 | ) |
|
|
| (12,517 | ) |
|
|
| 5,059 |
|
|
| 40.4 |
| % | |||||||||||||
Midwest |
|
|
| (6,981 | ) |
|
|
| — |
|
|
|
| 6,981 |
|
|
| 100.0 |
| % | |||||||||||||
South |
|
|
| (8,844 | ) |
|
|
| (7,331 | ) |
|
|
| 1,513 |
|
|
| 20.6 |
| % | |||||||||||||
East |
|
|
| (4,761 | ) |
|
|
| (4,843 | ) |
|
|
| (82 | ) |
|
| (1.7 | ) | % | |||||||||||||
Total Promotional Allowances |
|
| (24,691) |
|
| (15,996) |
|
| 8,695 |
| 54.4 | % |
|
|
|
| (38,162 | ) |
|
|
| (24,691 | ) |
|
|
| 13,471 |
|
|
| 54.6 |
| % |
Total Net Revenues |
|
| 241,565 |
|
| 183,540 |
|
| 58,025 |
| 31.6 | % |
|
|
|
| 444,874 |
|
|
|
| 241,565 |
|
|
|
| 203,309 |
|
|
| 84.2 |
| % |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Gaming and Pari-Mutuel Commissions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Nevada |
|
| 21,536 |
|
| 6,762 |
|
| 14,774 |
| 218.5 | % |
| ||||||||||||||||||||
Louisiana |
|
| 17,143 |
|
| 17,795 |
|
| (652) |
| (3.7) | % |
| ||||||||||||||||||||
Eastern |
|
| 68,099 |
|
| 69,466 |
|
| (1,367) |
| (2.0) | % |
| ||||||||||||||||||||
West |
|
| 33,650 |
|
|
| 21,536 |
|
|
|
| 12,114 |
|
|
| 56.3 |
| % | |||||||||||||||
Midwest |
|
|
| 42,681 |
|
|
|
| — |
|
|
|
| 42,681 |
|
|
| 100.0 |
| % | |||||||||||||
South |
|
|
| 39,243 |
|
|
|
| 17,143 |
|
|
|
| 22,100 |
|
|
| 128.9 |
| % | |||||||||||||
East |
|
|
| 73,817 |
|
|
|
| 68,099 |
|
|
|
| 5,718 |
|
|
| 8.4 |
| % | |||||||||||||
Total Gaming and Pari-Mutuel Commissions |
|
| 106,778 |
|
| 94,023 |
|
| 12,755 |
| 13.6 | % |
|
|
|
| 189,391 |
|
|
|
| 106,778 |
|
|
|
| 82,613 |
|
|
| 77.4 |
| % |
Non-gaming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Nevada |
|
| 25,862 |
|
| 8,982 |
|
| 16,880 |
| 187.9 | % |
| ||||||||||||||||||||
Louisiana |
|
| 1,762 |
|
| 2,061 |
|
| (299) |
| (14.5) | % |
| ||||||||||||||||||||
Eastern |
|
| 8,676 |
|
| 7,837 |
|
| 839 |
| 10.7 | % |
| ||||||||||||||||||||
West |
|
|
| 29,317 |
|
|
|
| 25,862 |
|
|
|
| 3,455 |
|
|
| 13.4 |
| % | |||||||||||||
Midwest |
|
|
| 4,667 |
|
|
|
| — |
|
|
|
| 4,667 |
|
|
| 100.0 |
| % | |||||||||||||
South |
|
|
| 4,450 |
|
|
|
| 1,762 |
|
|
|
| 2,688 |
|
|
| 152.6 |
| % | |||||||||||||
East |
|
|
| 5,953 |
|
|
|
| 8,676 |
|
|
|
| (2,723 | ) |
|
| (31.4 | ) | % | |||||||||||||
Total Non-gaming |
|
| 36,300 |
|
| 18,880 |
|
| 17,420 |
| 92.3 | % |
|
|
|
| 44,387 |
|
|
|
| 36,300 |
|
|
|
| 8,087 |
|
|
| 22.3 |
| % |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Marketing and promotions |
|
| 11,323 |
|
| 7,816 |
|
| 3,507 |
| 44.9 | % |
|
|
|
| 24,634 |
|
|
|
| 11,323 |
|
|
|
| 13,311 |
|
|
| 117.6 |
| % |
General and administrative |
|
| 34,094 |
|
| 23,285 |
|
| 10,809 |
| 46.4 | % |
|
|
|
| 68,585 |
|
|
|
| 34,094 |
|
|
|
| 34,491 |
|
|
| 101.2 |
| % |
Corporate |
|
| 4,426 |
|
| 3,652 |
|
| 774 |
| 21.2 | % |
|
|
|
| 7,718 |
|
|
|
| 4,426 |
|
|
|
| 3,292 |
|
|
| 74.4 |
| % |
Depreciation and amortization |
|
| 15,810 |
|
| 13,954 |
|
| 1,856 |
| 13.3 | % |
|
|
|
| 29,122 |
|
|
|
| 15,810 |
|
|
|
| 13,312 |
|
|
| 84.2 |
| % |
Total Operating Expenses |
| $ | 208,731 |
| $ | 161,610 |
| $ | 47,121 |
| 29.2 | % |
|
| $ |
| 363,837 |
|
| $ |
| 208,731 |
|
| $ |
| 155,106 |
|
|
| 74.3 |
| % |
Gaming Revenues and Pari-Mutuel Commissions.Commissions Gaming. Isle contributed $187.5 million of gaming revenues grew 17.5%and pari-mutuel commissions for the three months ended September 30, 20162017 consisting primarily of slot and table games revenues. As a result, gaming revenues and pari-mutuel commissions increased 98.3% for the three months ended September 30, 2017 compared to the same 2015 period mainly due to an increase in Nevadaprior year period.
Excluding incremental Isle gaming revenues resulting from incrementaland pari-mutuel commissions of $187.5 million, gaming revenues attributable toand pari-mutuel commissions declined 1.3% for the Reno Acquisition. Gaming revenues in Louisiana decreased $0.5 million during the third quarterthree months ended September 30, 2017 compared to the same 2015 period dueprior year period. Growth in the West segment attributable to a declinesstrong Reno market was offset by a decrease in gaming revenues in the South segment while the East segment remained flat. Reductions in gaming volume driven by decreased high-end play and continued weakness in the energy sector whichimpact of severe negatively impacted affected
the Shreveport market offset by an increase inSouth segment. Additionally, a historically low table games and slot hold percentage. The Eastern segment recorded a 2.0% decline in gaming revenues and pari-mutuel commissionspercentage at Shreveport during the thirdcurrent quarter compared to the same 2015prior year period mainly due to decreased gaming revenues at Mountaineer associated withalso drove the aforementioned smoking ban that has had a negative impact on the property’s operations along with a decline in pari-mutuel commissions attributable to a decreasecasino revenues in the number of live racing days atSouth segment. Efforts to eliminate unprofitable gaming play via reductions in marketing promotions and incentives across all of our Eastern properties. These decreases were partially offset by continued improvements in gaming revenues at Scioto Downs during the third quarter comparedsegments also contributed to the same 2015 period.
Non-gaming Revenues. Non-gaming revenues increased $38.7 milliondeclines in casino volume and positively impacted operating margins for the three months ended September 30, 20162017 compared to the same 2015 period mainly due to incrementalprior year period.
Non-gaming Revenues. Isle contributed $29.2 million of non-gaming revenues consistingfor the three months ended September 30, 2017 resulting in an increase of food, beverage, hotel, entertainment, retail and other revenues. The Nevada segment40.7% in non-gaming revenues over the same prior year period.
Excluding incremental Isle non-gaming revenues of $29.2 million, non-gaming revenues increased $37.9 million during3.4% for the third
28
quarterthree months ended September 30, 2017 compared to the same 2015prior year period. The West segment increased for the three months ended September 30, 2017 compared to the same prior year period principally due to higher hotel, food and beverage revenues as a result of increased visitor traffic and benefitted from the Reno properties’ capital improvements including renovated hotel rooms and new food, beverage and entertainment offerings. The South segment decreased in non-gaming revenues for the three months ended September 30, 2017 compared to the same prior year period primarily due to decreased food and beverage revenues associated with revisions to complimentary food offers. The East segment decreased for the Reno Acquisition. The Louisiana segment reported a 7.1% increase in non-gaming revenues during the third quarterthree months ended September 30, 2017 compared to the same 2015prior year period mainly due to increased beverage revenues. The Eastern segment posted a 0.9% increase in non-gaming revenues primarily due to increaseddecreased food and beverage revenues at Scioto Downs related to the opening of TheBrew Brothers in October 2015 partially offset by declines at Mountaineer resulting from strategic changesreductions in our promotional offers along with additional volume declines at Mountaineer associated withcomplimentary food offerings and the smoking ban impact. consolidation of restaurants in an effort to maximize capacity utilization.
Promotional Allowances.Allowances. Promotional allowances, expressed as a percentage of gaming revenues and pari-mutuel commissions, increaseddecreased to 13.1%10.2% for the three months ended September 30, 20162017 compared to 10.0% in13.1% for the same 2015prior year period. NevadaThis decline was primarily due to strategic revisions to reduce unprofitable promotional offers across all segments combined with the incremental revenues contributed by the Isle properties which historically have lower promotional allowances as a percentage of gaming revenues, increased slightly to 26.0%revenues.
Gaming Expenses and Pari-Mutuel Commissions. Isle contributed $88.5 million of gaming expenses and pari-mutuel commissions for the three months ended September 30, 2016 compared to 25.9%2017 resulting in an increase of 77.4% in gaming expenses and pari-mutuel commissions over the same 2015prior year period. Louisiana promotional allowances, as a percentage of
Excluding incremental Isle gaming revenues, increased to 23.3%expenses and pari-mutuel commissions, gaming expenses and pari-mutuel commissions decreased 5.5% for the three months ended September 30, 2016 from 20.4%2017 compared to the same prior year period primarily due to declines in gaming volume in the same 2015 period mainly dueSouth and East segments combined with savings initiatives targeted at reducing variable expenses along with continued synergies related to higher complimentary beverage revenues. Eastern promotional allowancesthe integration of the Tri-Properties in the West segment. Additionally, successful efforts to control costs and maximize departmental profit across all segments also drove the decline in expenses during the current period.
Non-gaming Expenses. Isle contributed $9.9 million of non-gaming expenses for the three months ended September 30, 2016 remained at 4.5% as a percentage2017 resulting in an increase of 22.3% over the segment’s gaming revenues and pari-mutuel commissions.same prior year period.
Gaming Expenses and Pari-Mutuel Commissions. Nevada gamingExcluding incremental Isle non-gaming expenses, increased $14.8 millionnon-gaming expenses decreased 5.5% for the three months ended September 30, 20162017 compared to the same 2015 period primarily due to incremental gaming expenses generated as a result of the Reno Acquisition. Louisiana gaming expenses, including gaming taxes, decreased 3.7% during the third quarter compared to the same 2015 period in conjunction with gaming revenues combined with efforts to reduce variable operating costs. The Eastern segment gaming expenses and pari-mutuel commissions decreased 2.0% for the three months ended September 30, 2016 compared to the same 2015 period primarily due lower gaming taxes at Mountaineer in conjunction with decreased gaming revenues.
Non-gaming Expenses. Non-gaming expenses increased $17.4 million for the three months ended September 30, 2016 compared to the same 2015prior year period. This growth was driven by higher Nevada non-gaming expenses which increased $16.9 million due to incrementalIncreased expenses associated with higher non-gaming revenues and hotel occupancy in the Reno Acquisition. Non-gamingWest segment were offset by lower non-gaming expenses in Louisiana declined 14.5% resulting from successful effortsthe South and East segments. Additionally, the growth in hotel ADR in the West segment contributed to reduce costs, while the Eastern segment increased 10.7% during the three months ended September 30, 2016 compared to the same 2015 period primarily due to the addition of The Brew Brothers at Scioto Downs in October 2015.improved non-gaming margins.
Marketing and Promotions Expenses.Expenses Consolidated. Isle contributed $12.1 million of marketing and promotions expense increased 44.9% for the three months ended September 30, 2016 compared to the same 2015 period. This increase was primarily attributable to incremental expenses in the Nevada segment associated with the Reno Acquisition and the Eastern segment offset by declines in the Louisiana segment.
General and Administrative Expenses. Total general and administrative expenses increased 46.4% for the three months ended September 30, 2016 compared to the same 2015 period primarily due to incremental expenses in the Nevada segment associated with the Reno Acquisition and increases in the Eastern segment offset by declines in the Louisiana segment due to continued efforts to decrease variable expenses.
Corporate Expenses. Corporate expenses totaled $4.4 million for the three months ended September 30, 2016 compared to $3.7 million for the same 2015 period. This increase was partially due to higher payroll related expenditures at the corporate level subsequent to the Reno Acquisition in addition to an executive team restructuring that took place during the first quarter of 2016, which resulted in the reallocation of property executive management to corporate in order to more fully utilize their skills across defined regions. Additionally, stock compensation expense was higher during the third quarter compared to the same 2015 period due to the Company’s three year vesting schedule resulting in two years of grants versus one year of grants in the same 2015 period and accelerated vesting of restricted stock units associated with management changes at Mountaineer that occurred during the current quarter.
Depreciation and Amortization Expense. Total depreciation and amortization expense increased 13.3% for the three months ended September 30, 2016 compared to the same 2015 period mainly due to additional depreciation expense associated with acquired assets in conjunction with the Reno Acquisition. The Nevada, Louisiana and Eastern segments contributed $4.9 million, $2.0 million and $8.8 million, respectively, of depreciation and amortization expense for the three months ended September 30, 20162017 resulting in an increase of 117.6% over the same prior year period.
Excluding incremental Isle marketing and promotions expenses, consolidated marketing and promotions expense increased 10.6% for the three months ended September 30, 2017 compared to $2.0the same prior year period. This increase was primarily attributable to increased expenses resulting from higher internet advertising spend, new television media production promoting new product offerings in the Reno market and a shift in marketing spend to targeted direct mail and promotional offers across all segments. Additionally, marketing promotional costs associated with casino initiatives are charged to this category to provide consistency among properties following the Isle Acquisition.
General and Administrative Expenses. Isle contributed $35.5 million $1.9 millionof general and $10.0 millionadministrative expense for the three months ended September 30, 2017 resulting in an increase of 101.2% over the same prior year period.
Excluding incremental Isle general and administrative expenses, consolidated general and administrative expenses decreased 3.0% for the three months ended September 30, 2017 compared to the same 2016 period primarily due to savings in property and general liability insurance costs and payroll and related benefit cost savings programs across all segments.
Corporate Expenses. For the three months ended September 30, 2017 compared to the same prior year period, corporate expenses increased primarily due to payroll and other expenses associated with additional corporate costs driven by growth related to the recent Isle Acquisition. Additionally, corporate costs rose as a result of higher stock compensation expense for the three months ended September 30, 2017 compared to the same prior year period due to the three year vesting schedule associated with our long-term incentive plan established in 2015 resulting in three years of grants and related expense in the current period versus two years of grants and related expense in the same 2015prior year period.
Depreciation and Amortization Expense. Isle contributed $14.9 million of depreciation expense for the three months ended September 30, 2017 resulting in an increase of 84.2% over the same prior year period.
Excluding incremental Isle depreciation and amortization expense, depreciation and amortization expense decreased 13.5% for the three months ended September 30, 2017 compared to the same prior year period respectively.
mainly due to lower depreciation in all segments due to assets becoming fully depreciated.
29
Nine monthsMonths Ended September 30, 20162017 Compared to the Nine monthsMonths Ended September 30, 20152016
Net revenues and operating expenses were as follows (dollars in thousands):
|
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| Nine Months Ended |
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| Nine Months Ended |
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| September 30, |
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| September 30, |
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| ||||||||||||
|
| 2016 |
| 2015 |
|
| Variance |
| Percent |
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|
| 2017 |
|
| 2016 |
|
| Variance |
|
| Percent |
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| |||||||||
Revenues: |
|
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| |
Gaming and Pari-Mutuel Commissions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| ||||
Nevada |
| $ | 132,480 |
| $ | 48,431 |
| $ | 84,049 |
| 173.5 | % |
| ||||||||||||||||||||
Louisiana |
|
| 92,702 |
|
| 95,729 |
|
| (3,027) |
| (3.2) | % |
| ||||||||||||||||||||
Eastern |
|
| 314,063 |
|
| 324,689 |
|
| (10,626) |
| (3.3) | % |
| ||||||||||||||||||||
West |
| $ |
| 178,390 |
|
| $ |
| 132,480 |
|
| $ |
| 45,910 |
|
|
| 34.7 |
| % | |||||||||||||
Midwest |
|
|
| 159,010 |
|
|
|
| — |
|
|
|
| 159,010 |
|
|
| 100.0 |
| % | |||||||||||||
South |
|
|
| 170,712 |
|
|
|
| 92,702 |
|
|
|
| 78,010 |
|
|
| 84.2 |
| % | |||||||||||||
East |
|
|
| 327,666 |
|
|
|
| 314,063 |
|
|
|
| 13,603 |
|
|
| 4.3 |
| % | |||||||||||||
Total Gaming and Pari-Mutuel Commissions |
|
| 539,245 |
|
| 468,849 |
|
| 70,396 |
| 15.0 | % |
|
|
|
| 835,778 |
|
|
|
| 539,245 |
|
|
|
| 296,533 |
|
|
| 55.0 |
| % |
Non-gaming: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Nevada |
|
| 148,475 |
|
| 43,757 |
|
| 104,718 |
| 239.3 | % |
| ||||||||||||||||||||
Louisiana |
|
| 28,801 |
|
| 28,184 |
|
| 617 |
| 2.2 | % |
| ||||||||||||||||||||
Eastern |
|
| 39,296 |
|
| 39,911 |
|
| (615) |
| (1.5) | % |
| ||||||||||||||||||||
West |
|
|
| 155,417 |
|
|
|
| 148,475 |
|
|
|
| 6,942 |
|
|
| 4.7 |
| % | |||||||||||||
Midwest |
|
|
| 23,693 |
|
|
|
| — |
|
|
|
| 23,693 |
|
|
| 100.0 |
| % | |||||||||||||
South |
|
|
| 35,758 |
|
|
|
| 28,801 |
|
|
|
| 6,957 |
|
|
| 24.2 |
| % | |||||||||||||
East |
|
|
| 37,742 |
|
|
|
| 39,296 |
|
|
|
| (1,554 | ) |
|
| (4.0 | ) | % | |||||||||||||
Corporate |
|
|
| 366 |
|
|
|
| — |
|
|
|
| 366 |
|
|
| 100.0 |
| % | |||||||||||||
Total Non-gaming |
|
| 216,572 |
|
| 111,852 |
|
| 104,720 |
| 93.6 | % |
|
|
|
| 252,976 |
|
|
|
| 216,572 |
|
|
|
| 36,404 |
|
|
| 16.8 |
| % |
Total Gross Revenues |
|
| 755,817 |
|
| 580,701 |
|
| 175,116 |
| 30.2 | % |
|
|
|
| 1,088,754 |
|
|
|
| 755,817 |
|
|
|
| 332,937 |
|
|
| 44.0 |
| % |
Promotional allowances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Nevada |
|
| (34,347) |
|
| (12,227) |
|
| 22,120 |
| 180.9 | % |
| ||||||||||||||||||||
Louisiana |
|
| (20,989) |
|
| (19,994) |
|
| 995 |
| 5.0 | % |
| ||||||||||||||||||||
Eastern |
|
| (14,035) |
|
| (14,856) |
|
| (821) |
| (5.5) | % |
| ||||||||||||||||||||
West |
|
|
| (40,279 | ) |
|
|
| (34,347 | ) |
|
|
| 5,932 |
|
|
| 17.3 |
| % | |||||||||||||
Midwest |
|
|
| (11,688 | ) |
|
|
| — |
|
|
|
| 11,688 |
|
|
| 100.0 |
| % | |||||||||||||
South |
|
|
| (23,045 | ) |
|
|
| (20,989 | ) |
|
|
| 2,056 |
|
|
| 9.8 |
| % | |||||||||||||
East |
|
|
| (12,764 | ) |
|
|
| (14,035 | ) |
|
|
| (1,271 | ) |
|
| (9.1 | ) | % | |||||||||||||
Total Promotional Allowances |
|
| (69,371) |
|
| (47,077) |
|
| 22,294 |
| 47.4 | % |
|
|
|
| (87,776 | ) |
|
|
| (69,371 | ) |
|
|
| 18,405 |
|
|
| 26.5 |
| % |
Total Net Revenues |
|
| 686,446 |
|
| 533,624 |
|
| 152,822 |
| 28.6 | % |
|
|
|
| 1,000,978 |
|
|
|
| 686,446 |
|
|
|
| 314,532 |
|
|
| 45.8 |
| % |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Gaming and Pari-Mutuel Commissions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Nevada |
|
| 61,196 |
|
| 20,447 |
|
| 40,749 |
| 199.3 | % |
| ||||||||||||||||||||
Louisiana |
|
| 50,585 |
|
| 53,241 |
|
| (2,656) |
| (5.0) | % |
| ||||||||||||||||||||
Eastern |
|
| 195,888 |
|
| 203,008 |
|
| (7,120) |
| (3.5) | % |
| ||||||||||||||||||||
West |
|
| 75,393 |
|
|
| 61,196 |
|
|
|
| 14,197 |
|
|
| 23.2 |
| % | |||||||||||||||
Midwest |
|
|
| 70,561 |
|
|
|
| — |
|
|
|
| 70,561 |
|
|
| 100.0 |
| % | |||||||||||||
South |
|
|
| 88,577 |
|
|
|
| 50,585 |
|
|
|
| 37,992 |
|
|
| 75.1 |
| % | |||||||||||||
East |
|
|
| 203,805 |
|
|
|
| 195,888 |
|
|
|
| 7,917 |
|
|
| 4.0 |
| % | |||||||||||||
Total Gaming and Pari-Mutuel Commissions |
|
| 307,669 |
|
| 276,696 |
|
| 30,973 |
| 11.2 | % |
|
|
|
| 438,336 |
|
|
|
| 307,669 |
|
|
|
| 130,667 |
|
|
| 42.5 |
| % |
Non-gaming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Nevada |
|
| 75,760 |
|
| 25,582 |
|
| 50,178 |
| 196.1 | % |
| ||||||||||||||||||||
Louisiana |
|
| 5,482 |
|
| 6,099 |
|
| (617) |
| (10.1) | % |
| ||||||||||||||||||||
Eastern |
|
| 23,369 |
|
| 22,059 |
|
| 1,310 |
| 5.9 | % |
| ||||||||||||||||||||
West |
|
|
| 74,815 |
|
|
|
| 75,760 |
|
|
|
| (945 | ) |
|
| (1.2 | ) | % | |||||||||||||
Midwest |
|
|
| 7,779 |
|
|
|
| — |
|
|
|
| 7,779 |
|
|
| 100.0 |
| % | |||||||||||||
South |
|
|
| 10,184 |
|
|
|
| 5,482 |
|
|
|
| 4,702 |
|
|
| 85.8 |
| % | |||||||||||||
East |
|
|
| 17,389 |
|
|
|
| 23,369 |
|
|
|
| (5,980 | ) |
|
| (25.6 | ) | % | |||||||||||||
Total Non-gaming |
|
| 104,611 |
|
| 53,740 |
|
| 50,871 |
| 94.7 | % |
|
|
|
| 110,167 |
|
|
|
| 104,611 |
|
|
|
| 5,556 |
|
|
| 5.3 |
| % |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Marketing and promotions |
|
| 30,664 |
|
| 22,321 |
|
| 8,343 |
| 37.4 | % |
|
|
|
| 54,845 |
|
|
|
| 30,664 |
|
|
|
| 24,181 |
|
|
| 78.9 |
| % |
General and administrative |
|
| 98,129 |
|
| 69,882 |
|
| 28,247 |
| 40.4 | % |
|
|
| 155,778 |
|
|
| 98,129 |
|
|
| 57,649 |
|
|
| 58.7 |
| % | |||
Corporate |
|
| 15,684 |
|
| 11,713 |
|
| 3,971 |
| 33.9 | % |
|
|
| 21,734 |
|
|
| 15,684 |
|
|
| 6,050 |
|
|
| 38.6 |
| % | |||
Depreciation and amortization |
|
| 47,597 |
|
| 42,454 |
|
| 5,143 |
| 12.1 | % |
|
|
|
| 69,635 |
|
|
|
| 47,597 |
|
|
|
| 22,038 |
|
|
| 46.3 |
| % |
Total Operating Expenses |
| $ | 604,354 |
| $ | 476,806 |
| $ | 127,548 |
| 26.8 | % |
|
| $ |
| 850,495 |
|
| $ |
| 604,354 |
|
| $ |
| 246,141 |
|
|
| 40.7 |
| % |
Gaming Revenues and Pari-Mutuel Commissions.Commissions Total. Isle contributed $312.8 million of gaming revenues and pari-mutuel commissions for the period from the Isle Acquisition Date through September 30, 2017 consisting primarily of slot and table games revenues. As a result, gaming revenues and pari-mutuel commissions increased 15.0%55.0% for the nine months ended September 30, 20162017 compared to the same 2015 period due to higher Nevada gaming revenues. This increase was mainly due toprior year period.
Excluding incremental Isle gaming revenues attributable to the Reno Acquisition and increasedpari-mutuel commissions of $312.8 million, gaming revenues at Eldorado Reno during the nine months ended September 30, 2016 compared to the same 2015 period. Gaming revenues in Louisiana decreased $3.0 milliondeclined 3.0% for the nine months ended September 30, 20162017 compared to the same 2015prior year period due to a decrease in gaming revenues across all segments. The decline in casino volume primarilythe West segment was mainly attributable to decreases in visitor traffic due to severe weather the northern Nevada region experienced throughout the first quarter of 2017 that resulted in limited access from our main feeder markets combined
with the absence of a major bowling tournament in the Reno market. Additionally, reductions in gaming volume driven by decreased high limithigh-end play, and the continued weakness in the energy sector, negatively impactinghistorically lower table games hold percentage impacted the Shreveport market. Gaming revenuesmarket and pari-mutuel commissionssevere weather in the Easternthird quarter of 2017 negatively impacted the South segment in 2017. Efforts to eliminate unprofitable gaming play via reductions in marketing promotions and incentives across the properties also contributed to the declines in casino volume and positively impacted margins across all segments.
Non-gaming Revenues. Isle contributed $48.8 million of non-gaming revenues for the period from the Isle Acquisition Date through September 30, 2017 resulting in an increase of 16.8% over the same prior year period.
Excluding incremental Isle non-gaming revenues of $48.8 million, non-gaming revenues decreased 5.9% for the nine months ended September 30, 2017 compared to the same prior year period. The West segment declined for the nine months ended September 30, 2016 resulting in a 3.3% decrease2017 compared to the same 2015 period. This decrease was mainlyprior year period principally due to declines in gaminglower hotel, food and beverage revenues at Mountaineer associated with the aforementioned smoking ban that has had a negative impact on the property’s operations along with a decline in pari-mutuel commissions attributableresulting from reduced customer traffic due to fewer live racing days acrossconvention room nights and the Eastern properties. These decreases were partially offset by continued improvements in gaming revenues at Scioto Downs, despite the $1.0 million impactabsence of the progressive liability change related to prior yearsa major bowling tournament during the first quarter of 2016, combined with higher gaming revenues at Presque Isle Downs for the nine months ended September 30, 2016 compared to the same 2015 period associated with increased table games drop and a higher table games hold percentage.
30
Non-gaming Revenues. Non-gaming revenues increased $104.7 million for the nine months ended September 30, 2016 compared to the same 2015 period which were driven by incremental non-gaming revenues consisting of food, beverage, hotel, entertainment, retail and other revenues in the Nevadacurrent year. The South segment primarily as a result of the Reno Acquisition combined with an increase in non-gaming revenues at Eldorado Reno. The Louisiana segment reported an increase of 2.2%decreased in non-gaming revenues for the nine months ended September 30, 20162017 compared to the same 2015prior year period mainlyprimarily due to higherdecreased food and beverage revenues. The Eastern segment posted a decrease in non-gaming revenues primarily due to the declines at Mountaineer and Presque Isle Downs resulting from strategic changes in our promotional offers along with additional volume declines at Mountaineer associated with revisions to marketing strategies resulting in fewer complimentary food offers and severe weather negatively impacting visitation in 2017. Non-gaming revenues in the smoking ban impact. Additionally, Presque Isle Downs experienced a decline in non-gaming revenues due to minor construction disruptionEast segment decreased for the nine months ended September 30, 2016 related to the transformation of the old Clubhouse Restaurant into a new The Brew Brothers restaurant and installation of a brand new escalator going from the casino floor to the entrance of The Brew Brothers. These decreases were partially offset by incremental non-gaming revenues at Scioto Downs for the nine months ended September 30, 20162017 compared to the same 2015prior year period attributableprimarily due to decreased food and beverage revenues resulting from reductions in complimentary food offers and the openingconsolidation of The Brew Brothersrestaurants in October 2015. an effort to maximize capacity utilization.
Promotional Allowances.Allowances. Promotional allowances, expressed as a percentage of gaming revenues and pari-mutuel commissions, increaseddecreased to 12.9%10.5% for the nine months ended September 30, 20162017 compared to 10.0% in12.9% for the same 2015prior year period. NevadaThis decline was primarily due to strategic revisions to promotional offers across all segments combined with the incremental revenues contributed by the Isle properties which historically have lower promotional allowances as a percentage of gaming revenues, increased to 25.9%revenues.
Gaming Expenses and Pari-Mutuel Commissions. Isle contributed $148.3 million of gaming expenses and pari-mutuel commissions for the period from the Isle Acquisition Date through September 30, 2017 resulting in an increase of 42.5% over the same prior year period.
Excluding incremental Isle gaming expenses and pari-mutuel commissions, gaming expenses and pari-mutuel commissions decreased 5.7% for the nine months ended September 30, 2016 from 25.2%2017 compared to the same prior year period primarily due to decreases in gaming volume combined with savings initiatives targeted at reducing variable expenses along with continued synergies related to the integration of the Reno properties in the West segment. Additionally, successful efforts to control costs and maximize departmental profit across all segments also drove the decline in expenses during the current period.
Non-gaming Expenses. Isle contributed $16.5 million of non-gaming expenses for the period from the Isle Acquisition Date through September 30, 2017 resulting in an increase of 5.3% over the same 2015prior year period. Louisiana promotional allowances, as a percentage of gaming revenues, increased to 22.6%
Excluding incremental Isle non-gaming expenses, non-gaming expenses decreased 10.5% for the nine months ended September 30, 2016 from 20.9% in2017 compared to the same 2015prior year period across all segments in conjunction with higher beverage complimentaries. The Eastern segment’s promotional allowancesnon-gaming revenue declines.
Marketing and Promotions Expenses. Isle contributed $20.5 million of marketing and promotions expense for the period from the Isle Acquisition Date through September 30, 2017 resulting in an increase of 78.9% over the same prior year period.
Excluding incremental Isle marketing and promotions expenses, consolidated marketing and promotions expense increased 11.8% for the nine months ended September 30, 2016 declined to 4.5% as a percentage of the segment’s gaming revenues and pari-mutuel commissions2017 compared to 4.6% in the same 2015prior year period. ReductionsThis increase was primarily attributable to increased marketing promotional costs associated with casino initiatives that are charged to this category to provide consistency among properties following the Isle Acquisition. Additionally, expenses resulting from higher internet advertising spend, new television media production promoting new product offerings and a shift in promotional allowances, as a percentage of gaming revenuesmarketing spend to targeted direct mail and pari-mutuel commissions in the Eastern segment were due to continued strategic revisions to our promotional offers across all segments.
General and Administrative Expenses. Isle contributed $59.8 million of marketing and promotions expense for the period from the Isle Acquisition Date through September 30, 2017 resulting in an effort to increase margins and maximize profitability.of 58.7% over the same prior year period.
Gaming ExpensesExcluding incremental Isle general and Pari-Mutuel Commissions. Nevada gamingadministrative expenses, increased $40.7 millionconsolidated general and administrative expenses decreased 2.2% for the nine months ended September 30, 20162017 compared to the same 20152016 period. Savings associated with lower property and general liability insurance costs were partially offset by higher expenses associated with information systems maintenance contracts and professional services. These incremental costs resulted from information technology infrastructure projects targeted at consolidating systems for future savings and efficiencies.
Corporate Expenses. For the nine months ended September 30, 2017 compared to the same prior year period, primarilycorporate costs increased due to incremental gamingpayroll and other expenses generated as a result ofassociated with additional corporate costs driven by growth related to the Reno Acquisition along with an increase in gaming expenses at Eldorado Reno in conjunction with increased gaming revenues. Louisiana gaming expenses decreased 5.0%Isle acquisition and higher stock compensation expense for the nine months ended September 30, 20162017 compared to the same 2015 period as a result of lower gaming revenues combined with efforts to reduce variable operating costs including payroll expenditures and slot participation fees. The Eastern segment’s gaming expenses and pari-mutuel commissions declined for the nine months ended September 30, 2016 compared to the same 2015 period primarily due lower gaming taxes at Mountaineer in conjunction with decreased gaming revenues.
Non-gaming Expenses. Non-gaming expenses increased $50.9 million for the nine months ended September 30, 2016 compared to the same 2015 period. This growth was driven by higher Nevada non-gaming expenses which increased $50.2 million due to incremental expenses associated with the Reno Acquisition. Non-gaming expenses in the Louisiana segment declined 10.1% mainly due to successful efforts to control costs while the Eastern segment’s non-gaming expenses increased 5.9% for the nine months ended September 30, 2016 compared to the same 2015 period as a result of incremental revenues generated by the addition of The Brew Brothers at Scioto Downs in October 2015.
Marketing and Promotions Expenses. Consolidated marketing and promotions expense increased 37.4% for the nine months ended September 30, 2016 compared to the same 2015 period. This increase was primarily attributable to incremental expenses in the Nevada segment associated with the Reno Acquisition offset by a decline in the Louisiana segment due to efforts to reduce advertising and promotional costs to maximize profitability. Marketing and promotions expense increased in the Eastern segment for the nine months ended September 30, 2016 compared to the same 2015 period resulting from additional spending related to sponsorships, marketing and promotional campaigns.
General and Administrative Expenses. Total general and administrative expenses increased 40.4% for the nine months ended September 30, 2016 compared to the same 2015 period primarily due to incremental expenses in the Nevada segment resulting from the operation of the properties purchased in the Reno Acquisition offset by declines in the Louisiana and Eastern segments as the properties continued to decrease variable expenses via cost savings initiatives.
Corporate Expenses. Corporate expenses totaled $15.7 million for the nine months ended September 30, 2016 compared to $11.7 million for the same 2015 period. This increase was partially due to higher payroll related expenditures at the corporate level subsequent to the Reno Acquisition in addition to an executive team restructuring that took place during the first quarter of 2016. This restructuring resulted in the reallocation of property executive management to corporate in order to more fully utilize their skills across defined regions. This increase was partially
31
offset by declines in general and administrative costs at the property level for the nine months ended September 30, 2016 compared to the same 2015 period. Additionally, $1.5 million of severance costs were recorded for the nine months ended September 30, 2016 along with $0.9 million of additional stock-based compensation expense as a result of severance related restricted stock units becoming fully vested during the current period. Also, stock compensation expense was higher for the nine months ended September 30, 2016 compared to the same 2015prior year period due to the Company’s three year vesting schedule associated with the Company’sour long-term incentive plan established in 2015 resulting in twothree years of grants and related expense in the current period versus one yeartwo years of grants and related expense in the same 2015prior year period.
Depreciation and Amortization Expense.Expense. Isle contributed $24.4 million of depreciation expense for the period from the Isle Acquisition Date through September 30, 2017 resulting in an increase of 46.3% over the same prior year period. Total
Excluding incremental Isle depreciation and amortization expense, increased 12.1%depreciation and amortization expense decreased 6.9% for the nine months ended September 30, 20162017 compared to the same 2015prior year period mainly due to additionallower depreciation expense associated with acquiredin all segments due to assets in conjunction with the Reno Acquisition. The Nevada, Louisiana and Eastern segments contributed $15.4 million, $5.9 million and $26.0 million, respectively, of depreciation and amortization expense for the nine months ended September 30, 2016 compared to $5.8 million, $5.7 million and $30.6 million in the same 2015 period, respectively. becoming fully depreciated.
Supplemental Unaudited Presentation of Consolidated Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA for the Three and Nine Months Ended September 30, 20162017 and 20152016
Adjusted EBITDA (defined below), a non GAAP financial measure, has been presented as a supplemental disclosure because it is a widely used measure of performance and basis for valuation of companies in our industry and we believe that this non GAAP supplemental information will be helpful in understanding the Company’s ongoing operating results. Adjusted EBITDA represents operating income (loss) before depreciation and amortization, stock based compensation, (gain) loss on the sale or disposal of property,transaction expenses, severance expenses, equity in income of unconsolidated affiliate, acquisition charges, S-1 expensesexpense and other regulatory gaming assessments, including the impact of the change in regulatory reporting requirements, to the extent that such items existed in the periods presented.expenses. Adjusted EBITDA is not a measure of performance or liquidity calculated in accordance with US GAAP, is unaudited and should not be considered an alternative to, or more meaningful than, net income (loss) as an indicator of our operating performance. Uses of cash flows that are not reflected in Adjusted EBITDA include capital expenditures, interest payments, income taxes, debt principal repayments and certain regulatory gaming assessments, which can be significant. As a result, Adjusted EBITDA should not be considered as a measure of our liquidity. Other companies that provide EBITDA information may calculate EBITDA differently than we do. The definition of Adjusted EBITDA may not be the same as the definitions used in any of our debt agreements.
The following table summarizes our Adjusted EBITDA for our operating segments for the three and nine months ended September 30, 20162017 and 2015,2016, in addition to reconciling Adjusted EBITDA to operating income (loss) in accordance with US GAAP (unaudited, in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, 2016 |
| |||||||||||||||||||
|
| Operating Income (Loss) |
| Depreciation and Amortization |
| Stock-Based Compensation(3) |
| Transaction Expenses |
| Severance Expense |
| Other(4) |
| Adjusted EBITDA |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nevada |
| $ | 15,606 |
| $ | 4,864 |
| $ | — |
| $ | — |
| $ | 153 |
| $ | (12) |
| $ | 20,611 |
|
Louisiana |
|
| 6,703 |
|
| 1,973 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 8,676 |
|
Eastern |
|
| 15,102 |
|
| 8,847 |
|
| — |
|
| — |
|
| 263 |
|
| (70) |
|
| 24,142 |
|
Corporate |
|
| (9,302) |
|
| 126 |
|
| 717 |
|
| 4,750 |
|
| — |
|
| — |
|
| (3,709) |
|
Total |
| $ | 28,109 |
| $ | 15,810 |
| $ | 717 |
| $ | 4,750 |
| $ | 416 |
| $ | (82) |
| $ | 49,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, 2015 |
| |||||||||||||||||||
|
| Operating Income (Loss) |
| Depreciation and Amortization |
| Stock-Based Compensation |
| Transaction Expenses |
| Severance Expense |
| Other(4) |
| Adjusted EBITDA |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nevada |
| $ | 6,339 |
| $ | 1,959 |
| $ | — |
| $ | — |
| $ | — |
| $ | (2,532) |
| $ | 5,766 |
|
Louisiana |
|
| 5,801 |
|
| 1,902 |
|
| — |
|
| — |
|
| — |
|
| (64) |
|
| 7,639 |
|
Eastern |
|
| 16,152 |
|
| 9,979 |
|
| — |
|
| — |
|
| 31 |
|
| (83) |
|
| 26,079 |
|
Corporate |
|
| (4,200) |
|
| 114 |
|
| 334 |
|
| 380 |
|
| 65 |
|
| 54 |
|
| (3,253) |
|
Total Excluding Pre-Reno Acquisition |
|
| 24,092 |
|
| 13,954 |
|
| 334 |
|
| 380 |
|
| 96 |
|
| (2,625) |
|
| 36,231 |
|
Pre-Reno Acquisition (1) |
|
| 10,819 |
|
| 2,659 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 13,478 |
|
Total Including Pre-Reno Acquisition (5) |
| $ | 34,911 |
| $ | 16,613 |
| $ | 334 |
| $ | 380 |
| $ | 96 |
| $ | (2,625) |
| $ | 49,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
| Three Months Ended September 30, 2017 |
| ||||||||||||||||||||||||||||||||
|
| Operating Income (Loss) |
|
| Depreciation and Amortization |
|
| Stock-Based Compensation |
|
| Transaction Expenses |
|
| Severance Expense |
|
| Other (6) |
|
| Adjusted EBITDA |
| ||||||||||||||
West |
| $ |
| 32,556 |
|
| $ |
| 7,654 |
|
| $ |
| 67 |
|
| $ |
| — |
|
| $ |
| 59 |
|
| $ |
| 43 |
|
| $ |
| 40,379 |
|
Midwest |
|
|
| 24,261 |
|
|
|
| 7,995 |
|
|
|
| 67 |
|
|
|
| — |
|
|
|
| 133 |
|
|
|
| (9 | ) |
|
|
| 32,447 |
|
South |
|
|
| 11,293 |
|
|
|
| 6,055 |
|
|
|
| 29 |
|
|
|
| — |
|
|
|
| 220 |
|
|
|
| 5 |
|
|
|
| 17,602 |
|
East |
|
|
| 21,140 |
|
|
|
| 6,732 |
|
|
|
| 5 |
|
|
|
| — |
|
|
|
| 64 |
|
|
|
| (39 | ) |
|
|
| 27,902 |
|
Corporate |
|
|
| (10,326 | ) |
|
|
| 686 |
|
|
|
| 1,207 |
|
|
|
| 2,094 |
|
|
|
| — |
|
|
|
| 72 |
|
|
|
| (6,267 | ) |
Total |
| $ |
| 78,924 |
|
| $ |
| 29,122 |
|
| $ |
| 1,375 |
|
| $ |
| 2,094 |
|
| $ |
| 476 |
|
| $ |
| 72 |
|
| $ |
| 112,063 |
|
��
|
| Three Months Ended September 30, 2016 |
| ||||||||||||||||||||||||||||||||
|
| Operating Income (Loss) |
|
| Depreciation and Amortization |
|
| Stock-Based Compensation |
|
| Transaction Expenses |
|
| Severance Expense |
|
| Other (6) |
|
| Adjusted EBITDA |
| ||||||||||||||
Excluding Pre-Acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
| $ |
| 15,606 |
|
| $ |
| 4,864 |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 153 |
|
| $ |
| (12 | ) |
| $ |
| 20,611 |
|
Midwest |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
South |
|
|
| 6,703 |
|
|
|
| 1,973 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 8,676 |
|
East |
|
|
| 15,102 |
|
|
|
| 8,847 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 263 |
|
|
|
| (70 | ) |
|
|
| 24,142 |
|
Corporate |
|
|
| (9,302 | ) |
|
|
| 126 |
|
|
|
| 717 |
|
|
|
| 4,750 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (3,709 | ) |
Total Excluding Pre-Acquisition |
| $ |
| 28,109 |
|
| $ |
| 15,810 |
|
| $ |
| 717 |
|
| $ |
| 4,750 |
|
| $ |
| 416 |
|
| $ |
| (82 | ) |
| $ |
| 49,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Acquisition (3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
| $ |
| 7,160 |
|
| $ |
| 2,236 |
|
| $ |
| 6 |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 9,402 |
|
Midwest |
|
|
| 22,536 |
|
|
|
| 10,058 |
|
|
|
| 41 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (952 | ) |
|
|
| 31,683 |
|
South |
|
|
| 7,378 |
|
|
|
| 4,269 |
|
|
|
| 21 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 11,668 |
|
East |
|
|
| (917 | ) |
|
|
| 694 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (223 | ) |
Corporate |
|
|
| (8,115 | ) |
|
|
| 322 |
|
|
|
| 1,200 |
|
|
|
| 805 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (5,788 | ) |
Total Pre-Acquisition |
| $ |
| 28,042 |
|
| $ |
| 17,579 |
|
| $ |
| 1,268 |
|
| $ |
| 805 |
|
| $ |
| — |
|
| $ |
| (952 | ) |
| $ |
| 46,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including Pre-Acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
| $ |
| 22,766 |
|
| $ |
| 7,100 |
|
| $ |
| 6 |
|
| $ |
| — |
|
| $ |
| 153 |
|
| $ |
| (12 | ) |
| $ |
| 30,013 |
|
Midwest |
|
|
| 22,536 |
|
|
|
| 10,058 |
|
|
|
| 41 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (952 | ) |
|
|
| 31,683 |
|
South |
|
|
| 14,081 |
|
|
|
| 6,242 |
|
|
|
| 21 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 20,344 |
|
East |
|
|
| 14,185 |
|
|
|
| 9,541 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 263 |
|
|
|
| (70 | ) |
|
|
| 23,919 |
|
Corporate |
|
|
| (17,417 | ) |
|
|
| 448 |
|
|
|
| 1,917 |
|
|
|
| 5,555 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (9,497 | ) |
Total Including Pre-Acquisition (2) |
| $ |
| 56,151 |
|
| $ |
| 33,389 |
|
| $ |
| 1,985 |
|
| $ |
| 5,555 |
|
| $ |
| 416 |
|
| $ |
| (1,034 | ) |
| $ |
| 96,462 |
|
|
| Nine Months Ended September 30, 2017 |
| ||||||||||||||||||||||||||||||||
|
| Operating Income (Loss) |
|
| Depreciation and Amortization |
|
| Stock-Based Compensation |
|
| Transaction Expenses |
|
| Severance Expense |
|
| Other (6) |
|
| Adjusted EBITDA |
| ||||||||||||||
Excluding Pre-Acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
| $ |
| 50,507 |
|
| $ |
| 18,868 |
|
| $ |
| 119 |
|
| $ |
| — |
|
| $ |
| 255 |
|
| $ |
| 16 |
|
| $ |
| 69,765 |
|
Midwest |
|
|
| 39,669 |
|
|
|
| 12,961 |
|
|
|
| 153 |
|
|
|
| — |
|
|
|
| 135 |
|
|
|
| (2 | ) |
|
|
| 52,916 |
|
South |
|
|
| 28,280 |
|
|
|
| 12,649 |
|
|
|
| 70 |
|
|
|
| — |
|
|
|
| 223 |
|
|
|
| 5 |
|
|
|
| 41,227 |
|
East |
|
|
| 54,333 |
|
|
|
| 23,885 |
|
|
|
| 9 |
|
|
|
| — |
|
|
|
| 86 |
|
|
|
| 206 |
|
|
|
| 78,519 |
|
Corporate |
|
|
| (111,834 | ) |
|
|
| 1,272 |
|
|
|
| 4,063 |
|
|
|
| 89,172 |
|
|
|
| 289 |
|
|
|
| 50 |
|
|
|
| (16,988 | ) |
Total Excluding Pre-Acquisition |
| $ |
| 60,955 |
|
| $ |
| 69,635 |
|
| $ |
| 4,414 |
|
| $ |
| 89,172 |
|
| $ |
| 988 |
|
| $ |
| 275 |
|
| $ |
| 225,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Acquisition (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
| $ |
| 9,525 |
|
| $ |
| 3,694 |
|
| $ |
| 8 |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 4 |
|
| $ |
| 13,231 |
|
Midwest |
|
|
| 34,819 |
|
|
|
| 11,952 |
|
|
|
| 51 |
|
|
|
| — |
|
|
|
| 5 |
|
|
|
| 29 |
|
|
|
| 46,856 |
|
South |
|
|
| 19,165 |
|
|
|
| 5,694 |
|
|
|
| 26 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 33 |
|
|
|
| 24,918 |
|
East |
|
|
| (1,072 | ) |
|
|
| 952 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (120 | ) |
Corporate |
|
|
| (8,811 | ) |
|
|
| 371 |
|
|
|
| 1,631 |
|
|
|
| 286 |
|
|
|
| 549 |
|
|
|
| (22 | ) |
|
|
| (5,996 | ) |
Total Pre-Acquisition |
| $ |
| 53,626 |
|
| $ |
| 22,663 |
|
| $ |
| 1,716 |
|
| $ |
| 286 |
|
| $ |
| 554 |
|
| $ |
| 44 |
|
| $ |
| 78,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including Pre-Acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
| $ |
| 60,032 |
|
| $ |
| 22,562 |
|
| $ |
| 127 |
|
| $ |
| — |
|
| $ |
| 255 |
|
| $ |
| 20 |
|
| $ |
| 82,996 |
|
Midwest |
|
|
| 74,488 |
|
|
|
| 24,913 |
|
|
|
| 204 |
|
|
|
| — |
|
|
|
| 140 |
|
|
|
| 27 |
|
|
|
| 99,772 |
|
South |
|
|
| 47,445 |
|
|
|
| 18,343 |
|
|
|
| 96 |
|
|
|
| — |
|
|
|
| 223 |
|
|
|
| 38 |
|
|
|
| 66,145 |
|
East |
|
|
| 53,261 |
|
|
|
| 24,837 |
|
|
|
| 9 |
|
|
|
| — |
|
|
|
| 86 |
|
|
|
| 206 |
|
|
|
| 78,399 |
|
Corporate |
|
|
| (120,645 | ) |
|
|
| 1,643 |
|
|
|
| 5,694 |
|
|
|
| 89,458 |
|
|
|
| 838 |
|
|
|
| 28 |
|
|
|
| (22,984 | ) |
Total Including Pre-Acquisition (2) |
| $ |
| 114,581 |
|
| $ |
| 92,298 |
|
| $ |
| 6,130 |
|
| $ |
| 89,458 |
|
| $ |
| 1,542 |
|
| $ |
| 319 |
|
| $ |
| 304,328 |
|
|
| Nine Months Ended September 30, 2016 |
| |||||||||||||||||||
|
| Operating Income (Loss) |
| Depreciation and Amortization |
| Stock-Based Compensation(3) |
| Transaction Expenses |
| Severance Expense |
| Other(4) |
| Adjusted EBITDA |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nevada |
| $ | 34,825 |
| $ | 15,373 |
| $ | — |
| $ | — |
| $ | 153 |
| $ | 168 |
| $ | 50,519 |
|
Louisiana |
|
| 18,746 |
|
| 5,883 |
|
| — |
|
| — |
|
| — |
|
| (50) |
|
| 24,579 |
|
Eastern (2) |
|
| 43,767 |
|
| 25,990 |
|
| — |
|
| — |
|
| 264 |
|
| 1,066 |
|
| 71,087 |
|
Corporate |
|
| (21,312) |
|
| 351 |
|
| 2,749 |
|
| 5,324 |
|
| 1,461 |
|
| (49) |
|
| (11,476) |
|
Total |
| $ | 76,026 |
| $ | 47,597 |
| $ | 2,749 |
| $ | 5,324 |
| $ | 1,878 |
| $ | 1,135 |
| $ | 134,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, 2015 |
| |||||||||||||||||||
|
| Operating Income (Loss) |
| Depreciation and Amortization |
| Stock-Based Compensation |
| Transaction Expenses |
| Severance Expense |
| Other(4) |
| Adjusted EBITDA |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nevada |
| $ | 10,497 |
| $ | 5,833 |
| $ | — |
| $ | — |
| $ | 63 |
| $ | (3,125) |
| $ | 13,268 |
|
Louisiana |
|
| 17,056 |
|
| 5,709 |
|
| — |
|
| — |
|
| 25 |
|
| (63) |
|
| 22,727 |
|
Eastern |
|
| 44,467 |
|
| 30,611 |
|
| — |
|
| — |
|
| 127 |
|
| (203) |
|
| 75,002 |
|
Corporate |
|
| (12,785) |
|
| 301 |
|
| 1,155 |
|
| 717 |
|
| 75 |
|
| 55 |
|
| (10,482) |
|
Total Excluding Pre-Reno Acquisition |
|
| 59,235 |
|
| 42,454 |
|
| 1,155 |
|
| 717 |
|
| 290 |
|
| (3,336) |
|
| 100,515 |
|
Pre-Reno Acquisition (1) |
|
| 18,603 |
|
| 9,100 |
|
| — |
|
| — |
|
| 20 |
|
| — |
|
| 27,723 |
|
Total Including Pre-Reno Acquisition (5) |
| $ | 77,838 |
| $ | 51,554 |
| $ | 1,155 |
| $ | 717 |
| $ | 310 |
| $ | (3,336) |
| $ | 128,238 |
|
|
| Nine Months Ended September 30, 2016 |
| ||||||||||||||||||||||||||||||||
|
| Operating Income (Loss) |
|
| Depreciation and Amortization |
|
| Stock-Based Compensation |
|
| Transaction Expenses (5) |
|
| Severance Expense |
|
| Other (4)(6) |
|
| Adjusted EBITDA |
| ||||||||||||||
Excluding Pre-Acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
| $ |
| 34,825 |
|
| $ |
| 15,373 |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 153 |
|
| $ |
| 168 |
|
| $ |
| 50,519 |
|
Midwest |
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
South |
|
|
| 18,746 |
|
|
|
| 5,883 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (50 | ) |
|
|
| 24,579 |
|
East (4) |
|
|
| 43,767 |
|
|
|
| 25,990 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 264 |
|
|
|
| 1,066 |
|
|
|
| 71,087 |
|
Corporate |
|
|
| (21,312 | ) |
|
|
| 351 |
|
|
|
| 2,749 |
|
|
|
| 5,324 |
|
|
|
| 1,461 |
|
|
|
| (49 | ) |
|
|
| (11,476 | ) |
Total Excluding Pre-Acquisition |
| $ |
| 76,026 |
|
| $ |
| 47,597 |
|
| $ |
| 2,749 |
|
| $ |
| 5,324 |
|
| $ |
| 1,878 |
|
| $ |
| 1,135 |
|
| $ |
| 134,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Acquisition (3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
| $ |
| 20,269 |
|
| $ |
| 6,528 |
|
| $ |
| 32 |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 26,829 |
|
Midwest |
|
|
| 65,403 |
|
|
|
| 29,034 |
|
|
|
| 129 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (247 | ) |
|
|
| 94,319 |
|
South |
|
|
| 33,557 |
|
|
|
| 12,525 |
|
|
|
| 69 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 46,151 |
|
East |
|
|
| (3,460 | ) |
|
|
| 2,861 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (599 | ) |
Corporate |
|
|
| (23,635 | ) |
|
|
| 1,118 |
|
|
|
| 3,058 |
|
|
|
| 805 |
|
|
|
| 870 |
|
|
|
| — |
|
|
|
| (17,784 | ) |
Total Pre-Acquisition |
| $ |
| 92,134 |
|
| $ |
| 52,066 |
|
| $ |
| 3,288 |
|
| $ |
| 805 |
|
| $ |
| 870 |
|
| $ |
| (247 | ) |
| $ |
| 148,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including Pre-Acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
| $ |
| 55,094 |
|
| $ |
| 21,901 |
|
| $ |
| 32 |
|
| $ |
| — |
|
| $ |
| 153 |
|
| $ |
| 168 |
|
| $ |
| 77,348 |
|
Midwest |
|
|
| 65,403 |
|
|
|
| 29,034 |
|
|
|
| 129 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (247 | ) |
|
|
| 94,319 |
|
South |
|
|
| 52,303 |
|
|
|
| 18,408 |
|
|
|
| 69 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (50 | ) |
|
|
| 70,730 |
|
East (4) |
|
|
| 40,307 |
|
|
|
| 28,851 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 264 |
|
|
|
| 1,066 |
|
|
|
| 70,488 |
|
Corporate |
|
|
| (44,947 | ) |
|
|
| 1,469 |
|
|
|
| 5,807 |
|
|
|
| 6,129 |
|
|
|
| 2,331 |
|
|
|
| (49 | ) |
|
|
| (29,260 | ) |
Total Including Pre-Acquisition (2) |
| $ |
| 168,160 |
|
| $ |
| 99,663 |
|
| $ |
| 6,037 |
|
| $ |
| 6,129 |
|
| $ |
| 2,748 |
|
| $ |
| 888 |
|
| $ |
| 283,625 |
|
(1) | Figures for Isle are the four months ended April 30, 2017, the day before the Company acquired Isle on May 1, 2017. The Company reports its financial results on a calendar fiscal year. Prior to the Company’s acquisition of Isle, Isle’s fiscal year typically ended on the last Sunday in April. Isle’s fiscal 2017 and 2016 were 52-week years, which commenced on April 25, 2016 and April 27, 2015, respectively. Such figures were prepared by the Company to reflect Isle’s unaudited consolidated historical net revenues and Adjusted EBITDA for periods corresponding to the Company’s fiscal quarterly calendar. Such figures are based on the unaudited internal financial statements and have not been reviewed by the Company’s auditors and do not conform to GAAP. |
(2) | Total figures for 2016 and 2017 include combined results of operations for Isle and the Company for periods preceding the date that the Company acquired Isle. Such presentation does not conform with GAAP or the Securities and Exchange Commission rules for proforma presentation; however, we believe that the additional financial information will be helpful to investors in comparing current results with results of prior periods. This is non-GAAP data and should not be considered a substitute for data prepared in accordance with GAAP, but should be viewed in addition to the results of operations reported by the Company. |
(3) | Figures are for Isle for the three and nine months ended September 30, |
| (4) | Effective January 1, 2016, the Ohio Lottery Commission enacted a regulatory change which resulted in the establishment of a $1.0 million progressive slot liability and a corresponding decrease in net slot win |
(5) |
|
|
| (6) | Other is comprised of (gain) loss on the sale or disposal of property, equity in |
|
|
Liquidity and Capital Resources
TheOur primary sources of liquidity and capital resources have been existing cash, cash flow from operations, borrowings under our revolving credit facility and proceeds from the issuance of debt securities. We closed on the Isle Acquisition on May 1, 2017 and paid $552.0 million in cash consideration in the Isle Acquisition, refinanced the outstanding Isle indebtedness and paid expenses related to the Isle Acquisition with proceeds from borrowings under the financing described below.
We expect that our primary capital requirements going forward will relate to the operation and maintenance of our properties and servicing our outstanding indebtedness and the cash consideration required to be paid in the Isle Acquistion and to refinance outstanding Isle indebtedness and pay expenses related to the Isle Acquisition.indebtedness. During the remainder of 2016,2017, we plan to spend $23.1$26.8 million on capital expenditures $4.8and $8.6 million to pay interest on our outstanding indebtedness and $1.1 million for principal payments on our term loan. We expected that we will fund amounts required to pay the cash consideration in the Isle Acquisition, refinance outstanding Isle indebtedness and pay expenses related to the Isle Acquisition with proceeds from borrowings under the financing that we expect to be provided pursuant to the Commitment Letter described below and cash on hand.indebtedness. We expect that cash generated from operations will be sufficient to fund our operations and capital requirements, and service our outstanding indebtedness for the foreseeable future.
33
next twelve months.
ERI is a holding company and its only significant assets are ownership interests in its subsidiaries. ERI’s ability to fund its obligations depends on the cash flow of its subsidiaries and the ability of its subsidiaries to distribute or otherwise make funds available to ERI.
AtAs of September 30, 2016,2017, we had consolidated cash and cash equivalents of $47.0$156.2 million, including restricted cash of $2.4$21.3 million.
Operating Cash Flow.Flow. For the nine months ended September 30, 2016,2017, cash flows provided by operating activities totaled $72.3$71.8 million compared to $20.5$72.3 million during the same prior year period. The increasedecrease in operating cash was primarily due to the increase in net income, including incremental net incometransaction costs associated with the RenoIsle Acquisition offset by a benefit in income taxes in the refinancing of our debt resulting in lower interest expense andcurrent year combined with changes in the balance sheet accounts in the normal course of business.
Investing Cash Flow.Flow and Capital Expenditures. Net cash flows used in investing activities totaled $27.2 million$1.4 billion for the nine months ended September 30, 2016,2017 compared to $78.3$27.2 million for the same prior year period. Net cash flows used in investing activities for the nine months ended September 30, 2016,2017 was primarily consisted of $32.9due to cash paid to acquire Isle in addition to $53.2 million in capital expenditures for various property enhancement and maintenance projects and equipment purchases partially offset by West Virginia’s reimbursement of capital expenditures totaling $4.1 million.purchases.
Financing Cash Flow.Flow. Net cash flows provided by financing activities for the nine months ended September 30, 2017 totaled $1.4 billion compared to $78.7 million used in financing activities for the nine months ended September 30, 2016, totaled $78.7 million2016. This increase was primarily related to the issuance of debt associated with the Isle Acquisition, the refinancing of our Term Loan and primarily consisted of net payments totaling $74.5 million on the Revolving Credit Facility in May 2017 and $3.2 millionthe issuance of additional 6% Senior Notes in September 2107. This increase was partially offset by net payments made on the Term Loan.
Capital Expenditures
Forour credit facilities throughout the nine months ended September 30, 2016, additions to property and equipment aggregated $32.9 million, which included $12.3 million in Nevada, $4.0 million in Louisiana, $16.3 million, before $4.1 million in reimbursements from West Virginia regulatory authorities, attributable to the Eastern properties and $0.4 million at corporate.2017.
Under legislation approved by the state of West Virginia in July 2011, Mountaineer participates in a modernization fund which provides for reimbursement from amounts paid to the West Virginia Lottery Commission in an amount equal to $1 for each $2 expended for certain qualifying capital expenditures having a useful life of more than three years and placed into service after July 1, 2011. Qualifying capital expenditures include the purchase of slot machines and related equipment to the extent such slot machines are retained by Mountaineer at its West Virginia location for not less than five years. Any unexpended balance from a given fiscal year will be available for one additional fiscal year, after which time the remaining unused balance carried forward will be forfeited. As of September 30, 2016, Mountaineer remains eligible for $3.4 million under annual modernization fund grants that expire in varying dates through June 30, 2018. We can make no assurances Mountaineer will be able to make qualifying capital expenditure purchases sufficient to receive reimbursement of the available funds prior to their expiration nor that the modernization funds will continue to be available.
We anticipate spending on capital expenditures for the remainder of 2016 to be approximately $23.1 million.
Debt Obligations
Refinancing Transaction and7% Senior Notes
On July 23, 2015, the Company issued at par $375.0 million in aggregate principal amount of 7.0% senior notes due 2023 (the “Senior(“7% Senior Notes”) pursuant to the indenture, dated as of July 23, 2015 (the “Indenture”), at an issue price equal to 100.0% ofbetween the aggregate principal amount of the Senior Notes.Company and U.S. Bank, National Association, as Trustee. The Senior Notes are guaranteed by all of the Company’s direct and indirect restricted subsidiaries. CC-Reno, LLC and the Silver Legacy Joint Venture became guarantors in June 2016 upon receipt of gaming approval which occurred in May 2016. The7% Senior Notes will mature on August 1, 2023, with interest payable semi-annually in arrears on February 1 and August 1 of each year.
The Company used the net proceeds from the Senior Notes offering together with borrowings under the Term Loan and the Revolving Credit Facility (as defined below) to (i) purchase or otherwise redeem (a) all of the outstanding Resorts senior secured notes and (b) all of the outstanding MTR second lien notes, (ii) pay a portion of the purchase price for the Circus Reno/Silver Legacy Purchase and repay all amounts outstanding under the Silver Legacy Joint
34
Venture credit facility, and (iii) pay fees and costs associated with such transactions. Net proceeds from the Senior Notes offering totaling $50.0 million were used for the Circus Reno/Silver Legacy Purchase on the Reno Acquisition Date. As a result of the July 2015 refinancing, we recognized a $2.0 million net loss on the early retirement of debt.
On or after August 1, 2018, the Company may redeem all or a portion of the 7% Senior Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of the principal amount) set forth below plus accrued and unpaid interest and additional interest, if any, on the 7% Senior Notes redeemed, to the applicable redemption date, if redeemed during the twelve month period beginning on August 1 of the years indicated below:
|
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2019 | 103.500% |
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2020 | 101.750% |
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2021 and thereafter | 100.000% |
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Prior to August 1, 2018, the Company may redeem all or a portion of the 7% Senior Notes at a price equal to 100% of the 7% Senior Notes redeemed plus accrued and unpaid interest to the redemption date, plus a make-whole premium. At any time prior to August 1, 2018, the Company is also entitled to redeem up to 35% of the original aggregate principal amount of the 7% Senior Notes with proceeds of certain equity financings at a redemption price equal to 107% of the principal amount of the 7% Senior Notes
redeemed, plus accrued and unpaid interest. If the Company experiences certain change of control events (as defined in the Indenture), it must offer to repurchase the 7% Senior Notes at 101% of their principal amount, plus accrued and unpaid interest to the applicable repurchase date. If the Company sells assets under certain circumstances and does not use the proceeds for specified purposes, the Company must offer to repurchase the 7% Senior Notes at 100% of their principal amount, plus accrued and unpaid interest to the applicable repurchase date. The 7% Senior Notes are subject to redemption imposed by gaming laws and regulations of applicable gaming regulatory authorities.
The Indenture contains certain covenants limiting, among other things, the Company’s ability and the ability of its subsidiaries (other than its unrestricted subsidiaries) to:
pay dividends or distributions or make certain other restricted payments or investments;
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incur or guarantee additional indebtedness or issue disqualified stock or create subordinated indebtedness that is not subordinated to the 7% Senior Notes or the guarantees of the 7% Senior Notes;
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create liens;
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transfer and sell assets;
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merge, consolidate, or sell, transfer or otherwise dispose of all or substantially all of the Company’s assets;
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enter into certain transactions with affiliates;
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engage in lines of business other than the Company’s core business and related businesses; and
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These covenants are subject to a number of exceptions and qualifications as set forth in the Indenture. The Indenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on such 7% Senior Notes to be declared due and payable. As of September 30, 2016,2017, the Company was in compliance with all of the covenants under the Indenture relating to the 7% Senior Notes.
6% Senior Notes
On March 29, 2017, Eagle II Acquisition Company LLC (“Eagle II”), a wholly-owned subsidiary of the Company, issued $375.0 million aggregate principal amount of 6% Senior Notes due 2025 (the “6% Senior Notes”) pursuant to an indenture, dated as of March 29, 2017 (the “New Indenture”), between Eagle II and U.S. Bank, National Association, as Trustee. The 6% Senior Notes will mature on April 1, 2025, with interest payable semi-annually in arrears on April 1 and October 1, commencing October 1, 2017. The proceeds of the offering, and additional funds in the amount of $1.9 million in respect of interest expected to be accrued on the 6% Notes, were placed in escrow pending satisfaction of certain conditions, including consummation of the Isle Acquisition. In connection with the consummation of the Isle Acquisition on May 1, 2017, the escrowed funds were released and ERI assumed Eagle II’s obligations under the 6% Senior Notes and the New Indenture and certain of the Company’s subsidiaries (including Isle and certain of its subsidiaries) executed guarantees of the Company’s obligations under the 6% Senior Notes.
On September 13, 2017, the Company issued an additional $500.0 million principal amount of its 6% Senior Notes at an issue price equal to 105.5% of the principal amount of the 6% Senior Notes. The additional notes were issued pursuant to the New Indenture that governs the 6% Senior Notes. The Company used the proceeds of the offering to repay $78.0 million of outstanding borrowings under the revolving credit facility and used the remainder to repay $444.5 million outstanding borrowings under the term loan facility and related accrued interest. As a result of the offering and retirement of existing debt, the Company recognized a loss of $10.0 million during the three months ended September 30, 2017.
On or after April 1, 2020, the Company may redeem all or a portion of the 6% Senior Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of the principal amount) set forth below plus accrued and unpaid interest and additional interest, if any, on the 6% Senior Notes redeemed, to the applicable redemption date, if redeemed during the 12-month period beginning on April 1 of the years indicated below:
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2022 |
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2023 and thereafter |
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Prior to April 1, 2020, the Company may redeem all or a portion of the 6% Senior Notes at a price equal to 100% of the 6% Senior Notes redeemed plus accrued and unpaid interest to the redemption date, plus a make-whole premium. At any time prior to August 1, 2018, the Company is also entitled to redeem up to 35% of the original aggregate principal amount of the 6% Senior Notes with proceeds of certain equity financings at a redemption price equal to 106% of the principal amount of the 6% Senior Notes redeemed, plus accrued and unpaid interest. If the Company experiences certain change of control events (as defined in the New Indenture), it must offer to repurchase the 6% Senior Notes at 101% of their principal amount, plus accrued and unpaid interest to the applicable repurchase date. If the Company sells assets under certain circumstances and does not use the proceeds for specified purposes, the Company must offer to repurchase the 6% Senior Notes at 100% of their principal amount, plus accrued and unpaid interest to the applicable repurchase date.
The 6% Senior Notes are subject to redemption imposed by gaming laws and regulations of applicable gaming regulatory authorities.
The New Indenture contains certain covenants limiting, among other things, the Company’s ability and the ability of its subsidiaries (other than its unrestricted subsidiaries) to:
pay dividends or distributions or make certain other restricted payments or investments;
incur or guarantee additional indebtedness or issue disqualified stock or create subordinated indebtedness that is not subordinated to the 6% Senior Notes or the guarantees of the 6% Senior Notes;
create liens;
transfer and sell assets;
merge, consolidate, or sell, transfer or otherwise dispose of all or substantially all of the Company’s assets;
enter into certain transactions with affiliates;
engage in lines of business other than the Company’s core business and related businesses; and
create restrictions on dividends or other payments by restricted subsidiaries.
These covenants are subject to a number of exceptions and qualifications as set forth in the New Indenture. The New Indenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on such 6% Senior Notes to be declared due and payable. As of September 30, 2017, the Company was in compliance with all of the covenants under the New Indenture relating to the 6% Senior Notes.
Credit Facility
On July 23, 2015, the Company entered into a new $425.0 million seven year term loan (the “Term Loan”) and a new $150.0 million five year revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan, the “Credit“Prior Credit Facility”).
As of September 30, 2016, the Company had $419.7 million outstanding on the Term Loan and $19.0 million in borrowings outstanding under the Revolving Credit Facility. The Company had $131.0 million of available borrowing capacity under its Revolving Credit Facility as of September 30, 2016. At September 30, 2016, the interest rate on the Term Loan was 4.25% and the average interest rate on the Revolving Credit Facility was 4.17%.
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The Term Loan bearsbore interest at a rate per annum of, at the Company’s option, either (x) LIBOR plus 3.25%, with a LIBOR floor of 1.0%, or (y) a base rate plus 2.25%. Borrowings under the Revolving Credit Facility bearbore interest at a rate per annum of, at the Company’s option, either (x) LIBOR plus a spread ranging from 2.5% to 3.25% or (y) a base rate plus a spread ranging from 1.5% to 2.25%, in each case with the spread determined based on the Company’s total leverage ratio. Additionally, the Company paid a commitment fee on the unused portion of the Revolving Credit Facility not being utilized in the amount of 0.50% per annum.
On May 1, 2017, all of the outstanding amounts under the Prior Credit Facility were repaid with proceeds of borrowings under the New Credit Facility (as defined below) and the Prior Credit Facility was terminated.
New Credit Facility
On April 17, 2017, Eagle II entered into a new credit agreement by and among Eagle II, as initial borrower, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto dated as of April 17, 2017 (the “New Credit Facility”), consisting of a $1.45 billion term loan facility (the “New Term Loan Facility” or the “New Term Loan”) and a $300.0 million revolving credit facility (the “New Revolving Credit Facility”), which was undrawn at closing. The proceeds of the New Term Loan Facility, and additional funds in the amount of $4.5 million in respect of interest expected to be accrued on the New Term Loan Facility, were placed in escrow pending satisfaction of certain conditions, including consummation of the Isle Acquisition. In connection with the consummation of the Isle Acquisition on May 1, 2017, the escrowed funds were released and ERI assumed Eagle II’s obligations under the New Credit Facility and certain of ERI’s subsidiaries (including Isle and certain of its subsidiaries) executed guarantees of ERI’s obligations under the New Credit Facility.
As of September 30, 2017, the Company had $1.0 billion outstanding on the New Term Loan. There were no borrowings outstanding under the New Revolving Credit Facility as of September 30, 2017. The Company had $291.6 million of available borrowing capacity, after consideration of $8.4 million in outstanding letters of credit, under its New Revolving Credit Facility as of September 30, 2017. At September 30, 2017, the interest rate on the New Term Loan was 3.42%, and the weighted average interest rate on the New Revolving Credit Facility was 4.12% based upon the weighted average interest rate of borrowings outstanding on our New Revolving Credit Facility as of September 30, 2017.
The Company applied the net proceeds of the New Term Loan Facility and borrowings under the New Revolving Credit Facility totaling $135 million, together with the proceeds of the 6% Senior Notes, and cash on hand, to (i) pay the cash portion of the consideration payable in the Isle Acquisition, (ii) refinance all of the debt outstanding under Isle’s existing credit facility, (iii) redeem or otherwise repurchase all of Isle’s outstanding 5.875% Senior Notes due 2021 and 8.875% Senior Subordinated Notes due 2020, (iv) repay all amounts outstanding under the Company’s Prior Credit Facility and (v) pay fees and costs associated with the Isle Acquisition and such financing transactions.
The Company’s obligations under the New Revolving Credit Facility will mature on April 17, 2022. The Company’s obligations under the New Term Loan Facility will mature on April 17, 2024. The Company was required to make quarterly principal payments in an amount equal to $3.6 million on the New Term Loan Facility on the last day of each fiscal quarter beginning on June 30, 2017. The Company satisfied this requirement as a result of the principal prepayment of $444.5 million on September 13, 2017 in conjunction with the issuance of the additional 6% Senior Notes. In addition, the Company is required to make mandatory payments of amounts outstanding under the New Credit Facility with the proceeds of certain casualty events, debt issuances, and asset sales and, depending on its consolidated total leverage ratio, the Company is required to apply a portion of its excess cash flow to repay amounts outstanding under the New Credit Facility.
The interest rate per annum applicable to loans under the New Revolving Credit Facility are, at our option, either (i) LIBOR plus a margin ranging from 1.75% to 2.50% or (ii) a base rate plus a margin ranging from 0.75% to 1.50%, which margin is based on our total leverage ratio. The interest rate per annum applicable to the loans under the New Term Loan Facility is, at our option, either (i) LIBOR plus 2.25%, or (ii) a base rate plus 1.25%; provided, however, that in no event will LIBOR be less than zero or the base rate be less than 1.00% over the term of the New Term Loan Facility or the New Revolving Credit Facility. Additionally, the Company pays a commitment fee on the unused portion of the Revolving Credit Facility not being utilized in the amount of 0.50% per annum.
The New Credit Facility is secured by substantially all of the Company’s personal property assets and substantially all personal property assets of each subsidiary that guaranties the New Credit Facility (other than certain subsidiary guarantors designated as immaterial) (the “Credit“New Credit Facility Guarantors”), whether owned on the closing date of the New Credit Facility or thereafter acquired, and mortgages on the real property and improvements owned or leased us or the New Credit Facility Guarantors. The New Credit Facility is also secured by a pledge of all of the equity owned by us and the New Credit Facility Guarantors (subject to certain gaming law restrictions). The credit agreement governing the New Credit Facility contains a number of customary covenants that, among other things, restrict, subject to certain exceptions, the Company’s ability and the ability of the New Credit Facility Guarantors to incur additional indebtedness, create liens on collateral, engage in mergers, consolidations or asset dispositions, make distributions, make investments, loans or advances, engage in certain transactions with affiliates or subsidiaries or make capital expenditures.
The credit agreement governingNew Credit Facility contains a number of customary covenants that, among other things, restrict, subject to certain exceptions, the Company’s ability and the ability of the subsidiary guarantors to incur debt; create liens on collateral; engage in mergers, consolidations or asset dispositions; pay dividends or make distributions; make investments, loans or advances; engage in certain transactions with affiliates or subsidiaries; or modify their lines of business.
The New Credit Facility also includes certain financial covenants, including the requirements that we maintain throughout the Company maintainterm of the New Credit Facility and measured as of the end of each fiscal quarter, and solely with respect to loans under the New Revolving Credit Facility, a maximum total leverage ratio and a minimum interest coverage ratio (adjusting over time). The Company is required to maintain a maximumconsolidated total leverage ratio of not more than 6.50 to 1.00 for the period beginning on the closing date and ending with the fiscal quarter ending December 31, 2018, 6.00 to 1.00 fromfor the period beginning with the fiscal quarter beginning January 1, 2016 to2019 and ending with the fiscal quarter ending December 31, 20172019, and 5.005.50 to 1.00 for the period beginning with the fiscal quarter beginning January 1, 2020 and thereafter. In addition, theThe Company iswill also be required to maintain a minimuman interest coverage ratio in an amount not less than 2.00 to 1.00 measured on the last day of each fiscal quarter beginning on the closing date, and ending with the fiscal quarter ending December 31, 2018, 2.50 to 1.00 for the period beginning with the fiscal quarter beginning January 1, 2019 and ending with the fiscal quarter ending December 31, 2019, and 2.75 to 1.00 fromfor the period beginning with the fiscal quarter beginning January 1, 2016 through December 31, 20162020 and 3.00 to 1.00 thereafter. A default of the financial ratio covenants shall only become an event of default under the Term Loan if the lenders providing the Revolving Credit Facility take certain affirmative actions after the occurrence of a default of such financial ratio covenants.
The credit agreement governing theNew Credit Facility contains a number of customary events of default, including, among others, for the non-payment of principal, interest or other amounts, the inaccuracy of certain representations and warranties, the failure to perform or observe certain covenants, a cross default to our other indebtedness including the Senior Notes, certain events of bankruptcy or insolvency; certain ERISA
events, the invalidity of certain loan documents, certain changes of control and the loss of certain classes of licenses to conduct gaming. If any event of default occurs, the lenders under the New Credit Facility would be entitled to take various actions, including accelerating amounts dueoutstanding thereunder and taking all actions permitted to be taken by a secured creditor. As of September 30, 2016,2017, the Company was in compliance with the covenants under the New Credit Facility.
Debt Commitment Letter
In connection with entering into the Merger Agreement, on September 19, 2016, the Company entered into a debt financing commitment letter with JPMorgan Chase Bank, N.A., as modified by the five separate written joinders to the Commitment Letter entered into by ERI and JPMorgan Chase Bank, N.A. with each of Macquarie Capital Funding LLC, KeyBank, National Association, Capital One, National Association, SunTrust Bank and U.S. Bank National Association and certain affiliates of such parties (the “ Commitment Letter”). The Commitment Letter provides for : (a) a senior secured credit facility in an aggregate principal amount of $1.75 billion comprised of (i) a term loan facility of up to $1.45 billion and (ii) a revolving credit facility of $300 million and (b) an amount equal to at least $375 million in gross proceeds from the issuance and sale by the Company of senior unsecured notes or, if the notes are not issued and sold on or prior to the date of the consummation of the Mergers, an amount equal to at least $375 million in senior unsecured bridge loans under a senior unsecured credit facility. The proceeds of such borrowings may be used (w) to pay consideration in the Mergers, (x) refinance all of Isle’s existing credit facilities and senior and senior subordinated notes, (y) refinance the Company’s existing credit facility and (z) pay transaction fees and expenses related to the foregoing. The availability of the borrowings is subject to the satisfaction of certain customary conditions.
Contractual Obligations
ThereOther than the previously discussed 6% Senior Notes, New Credit Facility and Isle leases for real estate and various equipment, there have been no material changes duringfor the three and nine months ended September 30, 20162017 to our contractual obligations as disclosed in our Annual Report on Form 10‑K for the year ended December 31, 2015.
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2016.
Other Liquidity Matters
The Pennsylvania Gaming Control Board (the “PGCB”), the Pennsylvania Department of Revenue and the Pennsylvania State Police (collectively “the Borrowers”), were required to fund the costs they incurred in connection with the initial development of the infrastructure to support gaming operations in Pennsylvania as well as the initial ongoing costs of the Borrowers. The initial funding of these costs was provided from a loan from the Pennsylvania General Fund in the amount of $36.1 million, and further funding was provided from additional loans from the Pennsylvania Property Tax Reserve Fund in the aggregate amount of $63.8 million.
The Pennsylvania Department of Revenue will assess all licensees, including Presque Isle Downs, their proportionate share of amounts represented by the borrowings, which are in the aggregate amount of $99.9 million, once the designated number of Pennsylvania’s slot machine licensees is operational. On July 11, 2011, the PGCB issued an administrative order which established that payments associated with the $63.8 million that was borrowed from the Property Tax Reserve Fund would commence on January 1, 2012. The repayment allocation between all current licensees is based upon equal weighting of (i) cumulative gross slot revenue since inception in relation to the combined cumulative gross slot revenue for all licensees and (ii) single year gross slot revenue (during the state’s fiscal year ending June 30) in relation to the combined single year gross slot revenue for all licensees; and amounts paid each year will be adjusted annually based upon changes in the licensee’s proportionate share of gross slot revenue. We have estimated that our total proportionate share of the aggregate $63.8 million to be assessed to the gaming facilities will be $4.1 million and will be paid quarterly over a ten‑year period, which began effective January 1, 2012. For the $36.1 million that was borrowed from the General Fund, payment is scheduled to begin after all fourteen licensees are operational. Although we cannot determine when payment will begin, we have considered a similar repayment model for the General Fund borrowings and estimated that our total proportionate share of the aggregate $36.1 million to all fourteen gaming facilities will approximate between $1.9 million and $2.1 million, which has been accrued in the accompanying consolidated balance sheet at September 30, 2016 and December 31, 2015.
The recorded estimate relative to the Property Tax Reserve Fund is subject to revision based upon future changes in the revenue assumptions utilized to develop the estimate. Our estimated total obligation at September 30, 2016 and December 31, 2015, was $4.1 million and $4.3 million, respectively, of which the residual total amount, both current and long-term, of $1.9 million and $2.2 million at September 30, 2016 and December 31, 2015, respectively, are appropriately accrued in the accompanying consolidated balance sheet. The Company paid $0.3 million for the nine months ended September 30, 2016.
We are faced with certain contingencies involving litigation and environmental remediation and compliance. These commitments and contingencies are discussed in “Part II, Item 1. Legal Proceedings” and Note 10 to our unaudited consolidated financial statements, both of which are included elsewhere in this report. In addition, new competition may have a material adverse effect on our revenues, and could have a similar adverse effect on our liquidity. See “Part I, Item 1A. Risk Factors—Risks Related to Our Business” which is included in our Annual Report on Form 10-K for the year ended December 31, 2015.
2016 and “Part II, Item IA. Risk Factors” which is included in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2017.
Critical Accounting Policies
Our critical accounting policies disclosures are included in our Annual Report on Form 10‑K for the year ended December 31, 2015. Management believes2016. Except as described in footnotes 1 and 3 to the accompanying condensed notes of these consolidated financial statements, we believe there have been no material changes since December 31, 2015.2016. We have not substantively changed the application of our policies and there have been no material changes in assumptions or estimation techniques used as compared to prior periods.
Off‑Balance Sheet Arrangements
We are not party to any off‑balance sheet arrangements.
Cautionary Statement Regarding Forward‑Looking Information
This report includes “forward‑looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward‑looking statements include statements regarding our strategies, objectives and plans for future development or acquisitions of properties or operations, as well as expectations, future operating results and other information that is not historical information.
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When used in this report, the terms or phrases such as “anticipates,” “believes,” “projects,” “plans,” “intends,” “expects,” “might,” “may,” “estimates,” “could,” “should,” “would,” “will likely continue,” and variations of such words or similar expressions are intended to identify forward‑looking statements. Forward‑looking statements in this report include, among other things, statements concerning:
projections of future results of operations or financial condition;
expectations regarding our business and results of operations of our existing casino properties and prospects for future development;
expenses and our ability to operate efficiently and our ability to achieve benefits and synergies associated with the Isle Acquisition;
expectations regarding trends that will affect our market and the gaming industry generally and the impact of those trends on our business and results of operations;
our ability to comply with the covenants in the agreements governing our outstanding indebtedness;
our ability to meet our projected debt service obligations, operating expenses, and maintenance capital expenditures;
expectations regarding availability of capital resources;
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the impact of regulation on our business and our ability to receive and maintain necessary approvals for our existing properties and future projects.
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Any forward‑looking statement is based upon a number of estimates and assumptions that, while considered reasonable by us, is inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control, and are subject to change. Actual results of operations may vary materially from any forward‑looking statement made herein. Forward‑looking statements should not be regarded as a representation by us or any other person that the forward‑looking statements will be achieved. Undue reliance should not be placed on any forward‑looking statements. Some of the contingencies and uncertainties to which any forward‑looking statement contained herein is subject include, but are not limited to, the following:
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Additionally, the Isle Acquisition, and significant financial commitments could adversely affect our results of operations and our ability to service such obligations;
restrictions and limitations in agreements governing our debt could significantly affect our ability to operate our business and our liquidity;
our facilities operate in very competitive environments and we face increasing competition;
the relatedability to successfully integrate ERI’s and Isle’s operations, technologies and employees;
the ability to realize growth opportunities and cost synergies from the Isle Merger, Agreement and provisions therein, will create additional any future acquisitions, in a timely manner or at all;
our operations are particularly sensitive to reductions in discretionary consumer spending and are affected by changes in general economic and market conditions;
our gaming operations are highly regulated by governmental authorities and the cost of complying or the impact of failing to comply with such regulations;
changes in gaming taxes and fees in jurisdictions in which we operate;
risks uncertaintiesrelating to pending claims or future claims that may be brought against us;
changes in interest rates and capital and credit markets;
our ability to comply with certain covenants in our debt documents;
the effect of disruptions to our information technology and other important factors including but not limited to:
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39systems and infrastructure;
construction factors relating to maintenance and expansion of operations;
Table of Contentsour ability to attract and retain customers;
weather or road conditions limiting access to our properties;
the effect of war, terrorist activity, natural disasters and other catastrophic events;
the intense competition to attract and retain management and key employees in the gaming industry; and
the other factors set forth in Part I, Item 1A. “Risk Factors” included in our Annual Report on Form 10‑K for the year ended December 31, 2016.
In light of these and other risks, uncertainties and assumptions, the forward‑looking events discussed in this report might not occur. Any forward‑looking statement speaks only as of the date on which that statement is made. We do not intend to update publicly any forward‑looking statement to reflect events or circumstances that occur after the date on which the statement is made, except as may be required by law.
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. We do not hold any market risk sensitive instruments for trading purposes. Our primary exposure to market risk is interest rate risk, specifically long‑term U.S. treasury rates and the applicable spreads in the high‑yield investment risk, short‑term and long‑term LIBOR rates, and short‑term Eurodollar rates, and their potential impact on our long‑term debt. We attempt to limit our exposure to interest rate risk by managing the mix of our long‑term fixed‑rate borrowings and short‑term borrowings under the Credit Facility. We do not currently utilize derivative financial instruments for trading or speculative purposes. (See also “Liquidity and Capital Resources” above for additional information related to the refinancing of our long‑term debt.)
As of September 30, 2016,2017, our long‑term variable‑rate borrowings totaled $438.7 million comprised of $419.7 million$1.0 billion under the New Term Loan and $19.0 million under the Revolving Credit Facility and represented approximately 54%44% of our long‑term debt.
In conjunction with the issuance of $500 million of additional 6% Senior Notes and the retirement of variable rate debt, this percentage declined from 54% as of December 31, 2016. Based on these changes, as of September 30, 2017 the weighted average interest rate on our variable and fixed rate debt was 3.63% and 6.3%, respectively.
There was no material change in interest rate risk for the nine months ended September 30, 2016.
ITEM 4. CONTROLS AND PROCEDURES.
2017 other than as previously discussed in Liquidity and Capital Resources section in Item 2.
(a) | Evaluation of Disclosure Controls and Procedures |
We have established and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports that we file under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, evaluated and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a‑ 15(e) and 15d‑15(e)) as of the end of the period covered by this Quarterly Report on Form 10‑Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10‑Q are effective to ensure that the information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized, evaluated and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
(b) | Changes in Internal Controls |
ThereExcept as noted below, there were no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10‑Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On May 1, 2017, we completed the acquisition of Isle. See Part I, Item 1, Condensed Notes to Unaudited Consolidated Financial Statements, Note 2: Isle Acquisition and Preliminary Purchase Price Accounting, for a discussion of the acquisition and related financial data. The Company is in the process of integrating Isle and our internal controls over financial reporting. As a result of these integration activities, certain controls will be evaluated and may be changed. Excluding the Isle Acquisition, there were no changes in our internal control over financial reporting that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.
We are a party to various lawsuits, which have arisen in the normal course of our business. Estimated losses are accrued for these lawsuits and claims when the loss is probable and can be estimated. The current liability for the
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estimated losses associated with those lawsuits is not material to our consolidated financial condition and those estimated losses are not expected to have a material impact on our results of operations.
Legal matters are discussed in greater detail in “Part I, Item 3. Legal Proceedings” and Note 16 to our Consolidated Financial statements included in our Annual Report on Form 10‑K for the year ended December 31, 2015.2016.
A description of our risk factors can be found in “Part I, Item 1A. Risk Factors” included in our Annual Report on Form 10‑K for the year ended December 31, 2015. Except as set forth below, there2016. There have been no material changes to those risk factors during the nine months ended September 30, 2016.2017, except for the following additional risk factors related to the Isle Acquisition.
We face substantial competition in the hotel and casino industry and expect that such competition will continue
The Merger Agreement subjectsgaming industry is characterized by an increasingly high degree of competition among a large number of participants, including land‑based casinos, dockside casinos, riverboat casinos, casinos located on racing tracks and casinos located on Native American reservations and other forms of legalized gaming. We also compete, to a lesser extent, with other forms of legalized gaming and entertainment such as online computer gambling, bingo, pull tab games, card parlors, sports books, fantasy sports websites, “cruise-to-nowhere” operations, pari-mutuel or telephonic betting on horse racing and dog racing, state-sponsored lotteries, jai-alai, and, in the Company to restrictions on its business activities duringfuture, may compete with gaming at other venues. In addition, we compete more generally with other forms of entertainment for the pendencydiscretionary spending of our customers.
Gaming competition is intense in most of the Mergers.
The Merger Agreement subjects the Company to restrictions on its business activitiesmarkets in which we operate. States that already have legalized casino gaming may further expand gaming, and obligates the Company to generally operate its businessesother states that have not yet legalized gaming may do so in the ordinary coursefuture. Legalized casino gaming in all material respects during the pendency of the Mergers. These restrictionsthese states and on Native American reservations near our markets or changes to gaming laws in states in which we have operations and in states surrounding our operations could prevent the Company from pursuing attractive business opportunities that arise prior to the completion of the Mergersincrease competition and are outside the ordinary course of business, and could otherwise have an adverse effect on ERI’s and Isle’s results of operations, cash flows and financial position.
Delay or failure to complete the Mergers would prevent the Company from realizing the anticipated benefits of the Mergers and each company would also remain liable for significant transaction costs, including legal, accounting and financial advisory fees.
Any delay in completing the Mergers may reduce the synergies and other benefits anticipated by the Company if it successfully completes the Mergers within the expected timeframe and integrates the businesses of the Company and Isle. In addition, the market price of each company’s common stock may reflect various market assumptions as to whether and when the Mergers will be completed. Consequently, the completion of, the failure to complete, or any delay in the completion of the Mergers could result in significant changes in the market price of the Company’s common stock. In addition, the Company has incurred and will continue to incur significant costs relating to the Mergers, such as legal, accounting, financial advisor and printing fees, that will be required to be paid whether or not the Mergers are consummated. Further, the Company may be required to pay a termination fee depending on the circumstances surrounding the termination.
Whether or not the Mergers are completed, the pendency of the transaction could cause disruptions in the businesses of the Company, which could have an adverse effect on its businesses and financial results.
These disruptions could include the following:
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Obtaining required approvals and satisfying closing conditions may delay or prevent completion of the Mergers and may significantly reduce the benefits anticipated to be realized from the Mergers or could adversely affect the market priceour operations. There has been significant competition in our markets as a result of the Companyexpansion of facilities by existing market participants, the entrance of new gaming participants into a market or its future business and financial results.
Completion oflegislative changes in prior years. For example, in Pennsylvania – a jurisdiction in which we currently operate two casinos – the Mergers is subjectGovernor signed legislation in October 2017 expanding gaming to various closing conditions, including (a) Isle’s stockholders adopting the Merger Agreement, (b) ERI’s stockholders approving the issuance of ERI shares as consideration in the Mergers, (c) the approval or expiration or termination of any applicable waiting period under the HSR Act, (d) obtaining certain gaming approvals to the standards set forth in the Merger Agreement and (e) each of Isle and ERI’s receipt of a tax opinion to the effect that the Mergers will be treated as a “reorganization” within the meaning of Section 368(a) of the Code. If such conditions are not satisfied, the Mergers will not be consummated unless such conditions are validly
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waived. Such conditions may jeopardize or delay completion of the Mergers or may reduce the anticipated benefits of the Mergers. Further, no assurance can be given that the required consents and approvals will be obtained or that the required conditions to closing will be satisfied. Even if all such consents and approvals are obtained, no assurance can be given as to the terms, conditions and timing of the consents and approvals or that they will satisfy the terms of the Merger Agreement. On October 21, 2016, the waiting period under the HSR Act was terminated early by the Federal Trade Commission.
The Mergers are subject to the receipt of approvals, consents or clearances that may impose conditions that could have an adverse effect on ERI or, if not obtained, could prevent completion of the transactions.
Completion of the Mergers is conditioned upon the receipt of certain governmental approvals, including, without limitation, antitrust and gaming regulatory approvals. Although each party has agreed to use its respective reasonable best efforts to obtain the requisite governmental approvals, there can be no assurance that these approvals will be obtained and that the other conditions to completing the Mergers will be satisfied. In addition, the governmental authorities from which the regulatory approvals are required may impose conditions on the completion of the Mergers or require changes to the terms of the Merger Agreement or other agreements to be entered into in connection with the Merger Agreement. Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying or impeding consummation of the Mergers or of imposing additional costs or limitations on ERI or Isle following completion of the Mergers, any of which might have an adverse effect on ERI or Isle.
Gaming regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.
ERI and Isle must obtain approval of the Mergers, which approvals must be duly obtained without the imposition of material restrictions or conditions and be in full force and effect, from a variety of gaming regulatory authorities. These approvals may not be received at all, may not be received in a timely fashion, and/or may contain conditions on the completion of the Mergers. In addition, these regulatory bodies may impose conditions on the granting of such approvals. Such conditions and the process of obtaining regulatory approvals could have the effect of delaying completion of the Mergers or of imposing additional costs or limitations on ERI following the Mergers.
If the financing contemplated by the Commitment Letter is not available, or alternative financing cannot be secured, the Mergers may not be completed and ERI may be required to pay a termination fee to Isle.
ERI intends to finance the cash required in connection with the Mergers, including expenses in connection with the Mergers, with debt financing in accordance with the terms of the Commitment Letter. The Commitment Letter providesallow for (a) a senior secured credit facility in an aggregate principal amount of $1.75 billion comprised of (i) a term loan facility of up to $1.45 billionten (10) additional casino locations, video gaming terminals (VGTs) at truck stops, interactive gaming (iGaming), gaming at airports and (ii) a revolving credit facility of $300.0 million and (b) an amount equal to at least $375.0 million in gross proceeds from the issuance and sale by ERI of senior unsecured notes or, if the notes are not issued and sold on or prior to the date of the consummation of the Mergers, an amount equal to at least $375.0 million in senior unsecured bridge loans under a senior unsecured credit facility. In the event some or all of the financing contemplated by the Commitment Letter is not available, ERI is obligated to use its reasonable best efforts to obtain alternative financing from alternative institutions in an amount sufficient to enable ERI to consummate the Mergers, refinance the outstanding indebtedness of Isle described in the prior paragraph and pay all fees and expenses of Isle in connection with the Mergers and the other transactions contemplated by the Merger Agreement. If financing cannot be obtained, the Mergers may not be completed. If ERI is unable to obtain funding from its financing sources for the cash required in connection with the Mergers, and Isle is otherwise ready, willing and able to close the Mergers, ERI may be liable to Isle for a financing failure fee of $60.0 million or may be compelled to specifically perform its obligations to consummate the transaction.
Litigation challenging the Mergers could delay or prevent the completion of the Mergers.
One of the conditions to the Mergers is that no temporary restraining order, preliminary or permanent injunction, or other judgment, order or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Mergers will be in effect; nor will there be any law, statute, ordinance, rule, regulation, order, policy, guideline or agency requirement enacted, entered, promulgated, enforced or deemed applicable by any governmental entity that prohibits or makes illegal the consummation of the Mergers. Although neither ERI nor Isle has been notified of any litigation filed challenging the Mergers, there can be no assurance that claims will not be filed by stockholders of ERI or Isle seeking damages relating to, or otherwise challenging, the
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Mergers. If any such litigation is filed and the plaintiffs in any such action secure injunctive or other relief prohibiting, delaying or otherwise adversely affecting ERI’s and Isle’s ability to consummate the Mergers, then such injunctive or other relief may prevent the Mergers from becoming effective within the expected time frame or at all. If consummation of the Mergers is prevented or delayed, it could result in substantial costs to ERI. In addition, ERI could incur significant costs in connection with such lawsuits, including costs associated with the indemnification of Isle’s directors and officers.
The integration of ERI and Isle following the Mergers may present significant challenges and impair ERI’s ability to realize the anticipated benefits of the Mergers in the anticipated time frame or at all.
ERI’s ability to realize the anticipated benefits of the Mergers will depend, to a large extent, on ERI’s ability to integrate Isle’s business into ERI in the anticipated time frame or at all. ERI may face significant challenges in combining Isle’s operations into its operations in a timely and efficient manner. The combination of two independent businesses is a complex, costly and time-consuming process. As a result, ERI will be required to devote significant management attention and resources to integrating the business practices and operations of Isle into those of ERI. The integration process may disrupt the business and, if implemented ineffectively or inefficiently, would preclude realization of the full benefits expected by ERI and Isle. The failure to successfully integrate Isle into ERI and to manage the challenges presented by the integration process successfully may result in an interruption of, or loss of momentum in, the business of ERI or Isle, which may have the effect of depressing the market price of ERI common stock following the Effective Time (as defined in the Merger Agreement).
ERI may be unable to realize anticipated cost synergies or may incur additional costs.
ERI expects to realize cost synergies from combining the sales and general and administrative functions of Isle and ERI. However, ERI will be required to incur costs, including severance and related expenses, to realize the anticipated cost savings. While ERI’s management believes the combined entity will benefit from cost synergies, ERI may be unable to realize all of these cost synergies within the time frame expected or at all. In addition, ERI may incur additional or unexpected costs in order to realize these cost synergies.
The Mergers may not be accretive and may cause dilution to the combined company’s earnings per share, which may negatively affect the price of the common stock of the combined company following completion of the Mergers.
ERI currently anticipates that the Mergers will be accretive to the earnings per share of the combined company in 2017.potentially sports wagering. This expectation is based on preliminary estimates and assumes certain synergies expected to be realized by the combined company over a 12-month period following the completion of the Mergers and the previously announced dispositions of Isle of Capri Casino Hotel Lake Charles and Lady Luck Casino Marquette. Such estimates and assumptions could materially change due to additional transaction-related costs, delays in regulatory approvals, the failure to realize any or all of the benefits expected in the Mergers or other factors beyond the control of ERI. All of these factors could delay, decrease or eliminate the expected accretive effect of the Mergers and cause resulting dilution to the combined company’s earnings per share or to the price of the common stock of the combined company.
Unanticipated costs relating to the Mergers could reduce ERI’s future earnings per share.
We believe that we have reasonably estimated the likely incremental costs of the combined operations of ERI and Isle following the Mergers. However, it is possible that unexpected transaction costs such as taxes, fees or professional expenses or unexpected future operating expenses such as unanticipated costs to integrate the two businesses, increased personnel costs or increased taxes, as well as other types of unanticipated adverse developments,expansion could have a material adverse effect on Lady Luck Casino at Nemacolin Woodlands Resort in Farmington and Presque Isle Downs in Erie and our gaming operations at Mountaineer and Scioto Downs. Additionally, gaming facilities in Ohio that commenced operations in recent years present significant competition for Mountaineer, Presque Isle Downs and Scioto Downs.
Casino gaming is currently prohibited in several jurisdictions from which the results of operationsShreveport/Bossier City market draws customers, primarily Texas. The Texas legislature has from time to time considered proposals to legalize gaming, and financial condition of ERI following the Mergers. In addition, if actual costs are materially different than expected costs, the Mergers could have a significant dilutive effect on ERI’s earnings per share.
ERIthere can be no assurance that casino gaming will have a substantial amount of debt outstanding following the Mergers and may incur additional indebtednessnot be approved in Texas in the future, which could restrict ERI’s abilityhave a material adverse effect on Eldorado Shreveport. Additionally, since visitors from California comprise a significant portion of our customer base in Reno, we also compete with Native American gaming operations in California. Native American tribes are allowed to pay dividendsoperate slot machines, lottery games and fund working capitalbanking and planned capital expenditures.
ERI expectspercentage games on Native American lands. Although many existing Native American gaming facilities in northern California are modest compared to incur approximately $2.2 billionthe Nevada properties, a number of debt, which includes ERI’s $375 million of debt currently outstanding wich will not be taken out,Native American tribes have established large‑scale gaming facilities in order to complete the Mergers and related transactions.California. In addition, ERI willvarious forms of internet gaming have been approved in Nevada, New Jersey and Delaware, and legislation permitting internet gaming has been proposed by the abilityfederal government and other states. The expansion of internet gaming in Nevada and other jurisdictions could result in significant additional competition.
Increased competition may require us to incur additional debt under its $300 million revolving credit facilitymake substantial capital expenditures to maintain and may be requiredenhance the competitive positions of our properties to incur
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additional indebtedness to financeincrease the cash portion of the merger consideration if the sale of Isle of Capri Casino Hotel Lake Charles and/or the sale of Lady Luck Casino Marquette is not consummated priorattractiveness and add to the closingappeal of the Mergers. This amount of leverage could have important consequences, including:
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Future interest expense will be significantly higher than historic interest expense as a result of higher levels of indebtedness incurred to consummate the Mergers. ERI’s ability to make payments on its debt and potential to pay dividends on its common stock, which ERI has not historically done, will depend on its ability to generate cash in the future, which will depend on many factors beyond its control. ERI cannot assure you that:
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If ERI cannot generate sufficient cash from its operations to meet its debt serviceour facilities. Because we are highly leveraged, after satisfying our obligations ERI may need to reduce or delay capital expenditures, the development of its business generally and any acquisitions. If ERI becomes unable to meet its debt service and repayment obligations, ERI would be in default under the terms of its credit agreement, which would allow its lenders to declare all outstanding borrowings to be due and payable. If the amounts outstanding under its credit facilities were to be accelerated, ERI cannot assure you that its assets would be sufficient to repay in full the money owed.
Delay or failure to consummate the sale of the Isle of Capri Casino Hotel Lake Charles or the Lady Luck Casino Marquette may require ERI to incur additional debt to repayour outstanding indebtedness, of Isle or otherwise adversely impact the financial condition of the combined company.
On August 22, 2016, Isle entered into an agreement to sell Isle of Capri Casino Hotel Lake Charles for aggregate consideration of $134.5 million, subject to certain adjustments. On October 13, 2016, Isle entered into an agreement to sell Lady Luck Casino Marquette for cash consideration of approximately $40.0 million, subject to certain adjustments. The consummation of each transaction is subject to satisfaction of customary conditions, including receipt of regulatory approval, the accuracy of the representations and warranties, compliance with covenants, delivery of certain closing deliverables and the absence of any governmental order or action seeking to prohibit the consummation of the transaction. Although Isle expects the sale of Isle of Capri Casino Hotel Lake Charles to be consummated in late fiscal 2017 or early fiscal 2018 and the sale of Lady Luck Casino Marquette to be consummated in fiscal 2018, there can be no assurance that we will have sufficient funds to undertake these expenditures or that we will be able to obtain sufficient financing to fund such expenditures. If we are unable to make such expenditures, our competitive position could be negatively affected.
Our operations in certain jurisdictions depend on agreements with third parties.
Our operations in several jurisdictions depend on agreements with third parties. If we are unable to renew these agreements on satisfactory terms as they expire, our business may be disrupted and, in the event of disruptions in multiple jurisdictions, could have a material adverse effect on our financial condition and results of operations. For example, Iowa law requires that each gambling venue in Iowa must have a licensed “Qualified Sponsoring Organization,” or QSO, which is a tax-exempt non-profit organization. The QSO must donate the profits it receives from casino operations to educational, civic, public, charitable, patriotic or religious uses. Each of our three Iowa properties has an agreement with a local QSO. We have the right to renew our agreements for Bettendorf and Waterloo when they expire in 2025 and 2018, respectively.
We have a management agreement with Nemacolin Woodlands Resort, the owner of the gaming license issued by the Pennsylvania Gaming Control Board allowing operation of a casino at the resort. Under the terms of this agreement, we constructed and currently operate a casino at the resort. Our management agreement is subject to a buy-out provision on or after December 31, 2021, as well as other terms and conditions which could result in termination of the management agreement. The base term of the agreement is ten years, with four, five-year renewal options. Additionally, each party to the timingmanagement agreement has certain termination rights. If the management agreement is terminated, we will no longer have the right to manage our casino at Nemacolin Woodlands Resort.
Our information technology and other systems are subject to cyber security risk including misappropriation of the closingcustomer information or other breaches of either sale or that the closings will occur on the terms set forthinformation security.
We collect information relating to our guests and employees for various business purposes, including marketing and promotional purposes. The collection and use of personal data are governed by privacy laws and regulations enacted in the purchase agreements relatingUnited States. We rely on information technology and other systems to maintain and transmit this personal and financial information, credit card settlements, credit card funds transmissions, mailing lists and reservations information. Our information and processes are subject to the sales,ever-changing threat of compromised security, in the form of a risk of potential breach, system failure, computer virus, or at all. In the event that the closingunauthorized or fraudulent use by customers, company employees, or employees of either sale is delayedthird party vendors. The steps we take to deter and mitigate these risks may not be successful, and any resulting compromise or does not occur, ERI may be required to incur additional indebtedness to repay debt outstanding under Isle’s credit agreementloss of data or outstanding notes, whichsystems could adversely impact, operations or regulatory compliance and could result in remedial expenses, fines, litigation, and loss of reputation, potentially impacting our financial results.
In addition, third party service providers and other business partners process and maintain proprietary business information and data related to our guests, suppliers and other business partners. Our information technology and other systems that maintain and transmit this information, or those of service providers or business partners, may also be compromised by a malicious third party penetration of our network security or that of a third party service provider or business partner, or impacted by intentional or unintentional actions or inactions by our employees or those of a third party service provider or business partner. As a result, our business information, guest, supplier, and other business partner data may be lost, disclosed, accessed or taken without their consent.
Any such loss, disclosure or misappropriation of, or access to, guests’ or business partners’ information or other breach of our information security can result in legal claims or legal proceedings, including regulatory investigations and actions, may have a serious impact on our reputation and may adversely affect our businesses, operating results and financial condition. Furthermore, the loss, disclosure or misappropriation of our business information may adversely affect our reputation, businesses, operating results and financial condition.
Some of our casinos are located on leased property. If we default on one or more leases, the applicable lessors could terminate the affected leases and we could lose possession of the affected casino.
We lease certain parcels of land on which several of our properties are located. As a ground lessee, we have the right to use the leased land; however, we do not hold fee ownership in the underlying land. Accordingly, with respect to the leased land, we will have no interest in the land or improvements thereon at the expiration of the ground leases. Moreover, since we do not completely control the land underlying the property, a landowner could take certain actions to disrupt our rights in the land leased under the long-term leases which are beyond our control. If the entity owning any leased land chose to disrupt our use either permanently or for a significant period of time, then the value of our assets could be impaired and our business and operations could be adversely affected. If we were to default on any one or more of these leases, the applicable lessors could terminate the affected leases and we could lose possession of the affected land and any improvements on the land, including the hotels and casinos. This would have a significant adverse effect on our business, financial condition and results of operations as we would then be unable to operate all or portions of the combined company.affected facilities and may result in the default under our New Credit Facility.
None.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Not applicable.
None.
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31.1 |
| Certification of |
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31.2 |
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32.1 |
| Certification of |
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32.2 | Certification of Thomas R. Reeg in accordance with 18 U.S.C. Section 1350 | Filed herewith. | ||
101.1 |
| XBRL Instance Document |
| Filed herewith. |
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101.2 |
| XBRL Taxonomy Extension Schema Document |
| Filed herewith. |
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101.3 |
| XBRL Taxonomy Extension Calculation Linkbase Document |
| Filed herewith. |
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101.4 |
| XBRL Taxonomy Extension Definition Linkbase Document |
| Filed herewith. |
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101.5 |
| XBRL Taxonomy Extension Label Linkbase Document |
| Filed herewith. |
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101.6 |
| XBRL Taxonomy Extension Presentation Linkbase Document |
| Filed herewith. |
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| ELDORADO RESORTS, INC. | |
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Date: November | /s/ Gary L. Carano | |
| Gary L. Carano | |
| Chief Executive Officer and Chairman of the Board | |
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Date: November | /s/ Thomas R. Reeg | |
| Thomas R. Reeg | |
| President and Chief Financial Officer | |
| (Principal Financial Officer) |
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