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 March 31, 20182019

OR

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

For the transition period                 to                 

Commission File No. 001‑36629

ELDORADO RESORTS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

46‑3657681

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

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

(Address and zip code of principal executive offices)

(775) 328‑0100

(Registrant’s telephone number, including area code)

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

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‑TS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes      No  

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

 

Large accelerated filer

 

Accelerated filer

Non‑accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

 

 

 

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

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $.00001, par value

ERI

NASDAQ Stock Market

The number of shares of the Registrant’s Common Stock, $0.00001 par value per share, outstanding as of May 03, 20183, 2019 was 77,241,115.77,472,148.

 

 

 

 


 

ELDORADO RESORTS, INC.

QUARTERLY REPORT FOR THE THREE MONTHS ENDED

MARCH 31, 20182019

TABLE OF CONTENTS

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

2

Item 1.

FINANCIAL STATEMENTS

 

2

 

Consolidated Balance Sheets at March 31, 20182019 (unaudited) and December 31, 20172018

 

2

 

Consolidated Statements of Income for the Three Months Ended March 31, 20182019 and 20172018 (unaudited)

 

3

 

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 20182019 and 20172018 (unaudited)

 

4

Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2019 and 2018 (unaudited)

5

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 20182019 and 20172018 (unaudited)

 

56

 

Condensed Notes to Unaudited Consolidated Financial Statements (unaudited)

 

67

Item 2.

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

 

3638

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

5256

Item 4.

CONTROLS AND PROCEDURES

 

5256

PART II. OTHER INFORMATION

 

57

Item 1.

LEGAL PROCEEDINGS

 

5457

Item 1A.

RISK FACTORS

 

5457

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

57

Item 3.

DEFAULTS UPON SENIOR SECURITIES

 

57

Item 4.

MINE SAFETY DISCLOSURES

 

57

Item 5.

OTHER INFORMATION

 

57

Item 6.

EXHIBITS

 

58

SIGNATURES

 

59

 


PART I-FINANCIAL INFORMATION

Item 1.  Financial Statements.

ELDORADO RESORTS, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

(unaudited)

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

183,138

 

 

$

 

134,596

 

 

$

 

216,883

 

 

$

 

230,752

 

Restricted cash

 

 

 

3,659

 

 

 

 

3,267

 

Restricted cash and investments

 

 

 

25,236

 

 

 

 

24,892

 

Marketable securities

 

 

 

17,236

 

 

 

 

17,631

 

 

 

 

16,899

 

 

 

 

16,957

 

Accounts receivable, net

 

 

 

33,738

 

 

 

 

45,797

 

 

 

 

65,604

 

 

 

 

60,169

 

Due from affiliates

 

 

 

62

 

 

 

 

243

 

 

 

 

3,130

 

 

 

 

327

 

Inventories

 

 

 

15,210

 

 

 

 

16,870

 

 

 

 

20,775

 

 

 

 

20,595

 

Prepaid income taxes

 

 

 

606

 

 

 

 

4,805

 

Prepaid expenses and other

 

 

 

22,626

 

 

 

 

27,823

 

Income taxes receivable

 

 

 

2,009

 

 

 

 

15,731

 

Prepaid expenses

 

 

 

32,454

 

 

 

 

48,002

 

Assets held for sale

 

 

 

199,034

 

 

 

 

 

 

 

 

 

 

 

 

155,771

 

Total current assets

 

 

 

475,309

 

 

 

 

251,032

 

 

 

 

382,990

 

 

 

 

573,196

 

PROPERTY AND EQUIPMENT, NET

 

 

 

1,396,286

 

 

 

 

1,502,817

 

GAMING LICENSES AND OTHER INTANGIBLES, NET

 

 

 

917,110

 

 

 

 

996,816

 

GOODWILL

 

 

 

719,255

 

 

 

 

747,106

 

NON-OPERATING REAL PROPERTY

 

 

 

14,030

 

 

 

 

18,069

 

OTHER ASSETS, NET

 

 

 

30,230

 

 

 

 

30,632

 

Investment in and advances to unconsolidated affiliates

 

 

 

132,240

 

 

 

 

1,892

 

Property and equipment, net

 

 

 

2,870,120

 

 

 

 

2,882,606

 

Gaming licenses and other intangibles, net

 

 

 

1,354,364

 

 

 

 

1,362,006

 

Goodwill

 

 

 

1,008,316

 

 

 

 

1,008,316

 

Other assets, net

 

 

 

366,488

 

 

 

 

83,446

 

Total assets

 

$

 

3,552,220

 

 

$

 

3,546,472

 

 

$

 

6,114,518

 

 

$

 

5,911,462

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

 

553

 

 

$

 

615

 

 

$

 

415

 

 

$

 

462

 

Accounts payable

 

 

 

28,354

 

 

 

 

34,778

 

 

 

 

89,932

 

 

 

 

58,524

 

Due to affiliates

 

 

 

10

 

 

 

 

 

Accrued property, gaming and other taxes

 

 

 

36,107

 

 

 

 

43,212

 

 

 

 

53,847

 

 

 

 

51,931

 

Accrued payroll and related

 

 

 

49,944

 

 

 

 

53,330

 

 

 

 

70,501

 

 

 

 

87,332

 

Accrued interest

 

 

 

33,312

 

 

 

 

25,607

 

 

 

 

39,052

 

 

 

 

42,780

 

Income taxes payable

 

 

 

6

 

 

 

 

171

 

 

 

 

12

 

 

 

 

47,475

 

Accrued other liabilities

 

 

 

63,606

 

 

 

 

66,037

 

 

 

 

135,585

 

 

 

 

102,982

 

Liabilities related to assets held for sale

 

 

 

5,398

 

 

 

 

 

 

 

 

 

 

 

 

10,691

 

Total current liabilities

 

 

 

217,290

 

 

 

 

223,750

 

 

 

 

389,344

 

 

 

 

402,177

 

LONG-TERM DEBT, LESS CURRENT PORTION

 

 

 

2,190,110

 

 

 

 

2,189,578

 

DEFERRED INCOME TAXES

 

 

 

167,595

 

 

 

 

162,967

 

OTHER LONG-TERM LIABILITIES

 

 

 

18,594

 

 

 

 

28,579

 

Long-term financing obligation to GLPI

 

 

 

962,505

 

 

 

 

959,835

 

Long-term debt, less current portion

 

 

 

3,057,151

 

 

 

 

3,261,273

 

Deferred income taxes

 

 

 

204,022

 

 

 

 

200,010

 

Other long-term liabilities

 

 

 

438,232

 

 

 

 

59,014

 

Total liabilities

 

 

 

2,593,589

 

 

 

 

2,604,874

 

 

 

 

5,051,254

 

 

 

 

4,882,309

 

COMMITMENTS AND CONTINGENCIES (Note 11)

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, 100,000,000 shares authorized, 77,241,115 and 76,825,966

issued and outstanding, par value $0.00001 as of March 31, 2018 and

December 31, 2017, respectively

 

 

 

1

 

 

 

 

 

Common stock, 200,000,000 shares authorized, 77,439,165

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

$0.00001 as of March 31, 2019 and December 31, 2018, respectively

 

 

 

1

 

 

 

 

1

 

Paid-in capital

 

 

 

742,724

 

 

 

 

746,547

 

 

 

 

748,702

 

 

 

 

748,076

 

Retained earnings

 

 

 

215,827

 

 

 

 

194,972

 

 

 

 

323,691

 

 

 

 

290,206

 

Treasury stock at cost, 223,823 shares held at March 31, 2019 and

December 31, 2018

 

 

 

(9,131

)

 

 

 

(9,131

)

Accumulated other comprehensive income

 

 

 

79

 

 

 

 

79

 

 

 

 

1

 

 

 

 

1

 

Total stockholders’ equity

 

 

 

958,631

 

 

 

 

941,598

 

 

 

 

1,063,264

 

 

 

 

1,029,153

 

Total liabilities and stockholders’ equity

 

$

 

3,552,220

 

 

$

 

3,546,472

 

 

$

 

6,114,518

 

 

$

 

5,911,462

 

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


ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share data)

(unaudited)

 

 

Three Months Ended

 

 

Three Months Ended

 

 

March 31,

 

 

March 31,

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

 

339,458

 

 

$

 

141,554

 

Pari-mutuel commissions

 

 

 

4,070

 

 

 

 

636

 

Casino and pari-mutuel commissions

 

$

 

470,851

 

 

$

 

343,528

 

Food and beverage

 

 

 

52,198

 

 

 

 

32,421

 

 

 

 

75,209

 

 

 

 

52,198

 

Hotel

 

 

 

30,741

 

 

 

 

19,305

 

 

 

 

64,691

 

 

 

 

30,741

 

Other

 

 

 

13,725

 

 

 

 

8,477

 

 

 

 

25,072

 

 

 

 

13,725

 

Net revenues

 

 

 

440,192

 

 

 

 

202,393

 

 

 

 

635,823

 

 

 

 

440,192

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

 

165,850

 

 

 

 

79,981

 

Pari-mutuel commissions

 

 

 

3,701

 

 

 

 

1,207

 

Casino and pari-mutuel commissions

 

 

 

210,306

 

 

 

 

169,551

 

Food and beverage

 

 

 

44,776

 

 

 

 

26,018

 

 

 

 

60,385

 

 

 

 

44,776

 

Hotel

 

 

 

12,506

 

 

 

 

9,079

 

 

 

 

23,650

 

 

 

 

12,506

 

Other

 

 

 

7,405

 

 

 

 

6,169

 

 

 

 

11,249

 

 

 

 

7,405

 

Marketing and promotions

 

 

 

21,301

 

 

 

 

10,129

 

 

 

 

32,301

 

 

 

 

21,301

 

General and administrative

 

 

 

74,202

 

 

 

 

31,800

 

 

 

 

119,888

 

 

 

 

74,202

 

Corporate

 

 

 

11,569

 

 

 

 

6,574

 

 

 

 

16,754

 

 

 

 

11,569

 

Impairment charges

 

 

 

9,815

 

 

 

 

 

 

 

 

958

 

 

 

 

9,815

 

Depreciation and amortization

 

 

 

31,534

 

 

 

 

15,604

 

 

 

 

57,757

 

 

 

 

31,534

 

Total operating expenses

 

 

 

382,659

 

 

 

 

186,561

 

 

 

 

533,248

 

 

 

 

382,659

 

(LOSS) GAIN ON SALE OR DISPOSAL OF PROPERTY AND EQUIPMENT

 

 

 

(706

)

 

 

 

32

 

TRANSACTION EXPENSES

 

 

 

(2,548

)

 

 

 

(1,614

)

EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATES

 

 

 

(85

)

 

 

 

(222

)

OPERATING INCOME

 

 

 

54,194

 

 

 

 

14,028

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

 

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

 

 

 

22,318

 

 

 

 

(706

)

Transaction expenses

 

 

 

(1,894

)

 

 

 

(2,548

)

Income (loss) from unconsolidated affiliates

 

 

 

605

 

 

 

 

(85

)

Operating income

 

 

 

123,604

 

 

 

 

54,194

 

OTHER EXPENSE:

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

(31,251

)

 

 

 

(12,670

)

 

 

 

(73,510

)

 

 

 

(31,251

)

Unrealized loss on restricted investments

 

 

 

(1,460

)

 

 

 

 

Total other expense

 

 

 

(31,251

)

 

 

 

(12,670

)

 

 

 

(74,970

)

 

 

 

(31,251

)

NET INCOME BEFORE INCOME TAXES

 

 

 

22,943

 

 

 

 

1,358

 

PROVISION FOR INCOME TAXES

 

 

 

(2,088

)

 

 

 

(413

)

NET INCOME

 

$

 

20,855

 

 

$

 

945

 

Net Income per share of Common Stock:

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

 

48,634

 

 

 

 

22,943

 

Provision for income taxes

 

 

 

(10,405

)

 

 

 

(2,088

)

Net income

 

$

 

38,229

 

 

$

 

20,855

 

Net income per share of common stock:

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 

0.27

 

 

$

 

0.02

 

 

$

 

0.49

 

 

$

 

0.27

 

Diluted

 

$

 

0.27

 

 

$

 

0.02

 

 

$

 

0.49

 

 

$

 

0.27

 

Weighted Average Basic Shares Outstanding

 

 

 

77,353,730

 

 

 

 

47,120,751

 

Weighted Average Diluted Shares Outstanding

 

 

 

78,080,049

 

 

 

 

48,081,281

 

Weighted average basic shares outstanding

 

 

 

77,567,147

 

 

 

 

77,353,730

 

Weighted average diluted shares outstanding

 

 

 

78,589,110

 

 

 

 

78,080,049

 

 

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


ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

NET INCOME

 

$

 

20,855

 

 

$

 

945

 

Other Comprehensive Income, net of tax:

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

Comprehensive Income, net of tax

 

$

 

20,855

 

 

$

 

945

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31,

 

 

2019

 

 

2018

 

Net income

$

 

38,229

 

 

$

 

20,855

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

Comprehensive income, net of tax

$

 

38,229

 

 

$

 

20,855

 

 

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


ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in thousands)

(unaudited)

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Paid-in

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income

 

 

Shares

 

 

Amount

 

 

Total

 

Balance, December 31, 2018

 

 

77,438,889

 

 

$

 

1

 

 

$

 

748,076

 

 

$

 

290,206

 

 

$

 

1

 

 

 

 

223,823

 

 

$

 

(9,131

)

 

$

 

1,029,153

 

Cumulative change in accounting principle, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,744

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,744

)

Issuance of restricted stock units

 

 

330,641

 

 

 

 

 

 

 

 

4,948

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,948

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,229

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,229

 

Shares withheld related to net share settlement

   of stock awards

 

 

(106,542

)

 

 

 

 

 

 

 

(4,322

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,322

)

Balance, March 31, 2019

 

 

77,662,988

 

 

$

 

1

 

 

$

 

748,702

 

 

$

 

323,691

 

 

$

 

1

 

 

 

 

223,823

 

 

$

 

(9,131

)

 

$

 

1,063,264

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017

 

 

76,825,966

 

 

$

 

 

 

$

 

746,547

 

 

$

 

194,971

 

 

$

 

79

 

 

 

 

 

 

$

 

 

 

$

 

941,597

 

Issuance of restricted stock units

 

 

645,047

 

 

 

 

 

 

 

 

3,679

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,679

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,855

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,855

 

Shares withheld related to net share settlement

   of stock awards

 

 

(229,898

)

 

 

 

 

 

 

 

(7,502

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,502

)

Balance, March 31, 2018

 

 

77,241,115

 

 

$

 

 

 

 

 

742,724

 

 

$

 

215,826

 

 

$

 

79

 

 

 

 

 

 

 

 

 

 

$

 

958,629

 

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


ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Net income

 

$

 

20,855

 

 

$

 

945

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

31,534

 

 

 

 

15,604

 

Amortization of deferred financing costs, discount and debt premium

 

 

 

1,446

 

 

 

 

877

 

Equity in loss of unconsolidated affiliates

 

 

 

85

 

 

 

 

222

 

Stock compensation expense

 

 

 

3,679

 

 

 

 

1,733

 

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

 

 

 

706

 

 

 

 

(32

)

Provision for bad debt

 

 

 

375

 

 

 

 

218

 

Impairment charges

 

 

 

9,815

 

 

 

 

 

Provision for deferred income taxes

 

 

 

1,450

 

 

 

 

369

 

Other

 

 

 

23

 

 

 

 

16

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Sale of trading securities

 

 

 

395

 

 

 

 

 

Accounts receivable

 

 

 

9,491

 

 

 

 

5,647

 

Inventory

 

 

 

(154

)

 

 

 

(251

)

Prepaid expenses and other assets

 

 

 

1,801

 

 

 

 

(1,423

)

Interest payable

 

 

 

7,539

 

 

 

 

(10,006

)

Income taxes payable

 

 

 

4,199

 

 

 

 

67

 

Accounts payable and accrued liabilities

 

 

 

(15,232

)

 

 

 

(8,803

)

Net cash provided by operating activities

 

 

 

78,007

 

 

 

 

5,183

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment, net

 

 

 

(21,271

)

 

 

 

(6,206

)

Proceeds from sale of property and equipment

 

 

 

150

 

 

 

 

32

 

Cash escrow related to acquisition

 

 

 

 

 

 

 

(376,750

)

Decrease in other assets, net

 

 

 

 

 

 

 

(148

)

Net cash used in investing activities

 

 

 

(21,121

)

 

 

 

(383,072

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of 6% Senior Notes

 

 

 

 

 

 

 

375,000

 

Payments under Term Loan

 

 

 

 

 

 

 

(1,063

)

Borrowings under Prior Revolving Credit Facility

 

 

 

 

 

 

 

23,000

 

Payments under Prior Revolving Credit Facility

 

 

 

 

 

 

 

(29,000

)

Payments on capital leases

 

 

 

(148

)

 

 

 

(94

)

Debt issuance costs

 

 

 

(304

)

 

 

 

(7,016

)

Taxes paid related to net share settlement of equity awards

 

 

 

(7,502

)

 

 

 

(179

)

Proceeds from exercise of stock options

 

 

 

 

 

 

 

434

 

Other

 

 

 

(22

)

 

 

 

 

Net cash (used in) provided by financing activities

 

 

 

(7,976

)

 

 

 

361,082

 

 

 

 

 

 

 

 

 

 

 

 

INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

 

 

48,910

 

 

 

 

(16,807

)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR

 

 

 

147,749

 

 

 

 

63,443

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD

 

$

 

196,659

 

 

$

 

46,636

 

 

 

 

 

 

 

 

 

 

 

 

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO

   AMOUNTS REPORTED WITHIN THE CONDENSED CONSOLIDATED BALANCE SHEETS:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

183,138

 

 

$

 

44,574

 

Restricted cash

 

 

 

3,659

 

 

 

 

2,062

 

Restricted cash included in other noncurrent assets

 

 

 

9,862

 

 

 

 

 

TOTAL CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

$

 

196,659

 

 

$

 

46,636

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

 

Interest paid

 

$

 

21,814

 

 

$

 

23,546

 

Local income taxes paid (refunded)

 

 

 

186

 

 

 

 

(20

)

NON-CASH FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

Net change in payables for capital expenditures

 

 

 

2,366

 

 

 

 

2,312

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Net income

 

$

 

38,229

 

 

$

 

20,855

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

57,757

 

 

 

 

31,534

 

Amortization of deferred financing costs, discount and debt premium

 

 

 

4,547

 

 

 

 

1,446

 

Deferred revenue

 

 

 

(1,397

)

 

 

 

 

Unrealized loss on restricted investment

 

 

 

1,460

 

 

 

 

 

Stock compensation expense

 

 

 

4,948

 

 

 

 

3,679

 

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

 

 

 

(22,318

)

 

 

 

706

 

Impairment charges

 

 

 

958

 

 

 

 

9,815

 

Provision for deferred income taxes

 

 

 

5,224

 

 

 

 

1,450

 

Other

 

 

 

215

 

 

 

 

483

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

(3,933

)

 

 

 

9,491

 

Prepaid expenses and other assets

 

 

 

14,331

 

 

 

 

2,042

 

Accrued interest

 

 

 

(6,562

)

 

 

 

7,539

 

Income taxes payable

 

 

 

(26,398

)

 

 

 

4,199

 

Accounts payable and accrued other liabilities

 

 

 

(1,621

)

 

 

 

(15,232

)

Net cash provided by operating activities

 

 

 

65,440

 

 

 

 

78,007

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment, net

 

 

 

(38,360

)

 

 

 

(21,271

)

Purchase of restricted investments

 

 

 

(80

)

 

 

 

 

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

 

 

 

167,945

 

 

 

 

150

 

Net cash provided by (used in) investing activities

 

 

 

129,505

 

 

 

 

(21,121

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Net payments under Revolving Credit Facility

 

 

 

(205,000

)

 

 

 

 

Debt issuance costs

 

 

 

(386

)

 

 

 

(304

)

Taxes paid related to net share settlement of equity awards

 

 

 

(4,322

)

 

 

 

(7,502

)

Payments on other long-term payables

 

 

 

(118

)

 

 

 

(170

)

Net cash used in financing activities

 

 

 

(209,826

)

 

 

 

(7,976

)

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

(14,881

)

 

 

 

48,910

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

 

246,691

 

 

 

 

147,749

 

Cash, cash equivalents and restricted cash, end of period

 

$

 

231,810

 

 

$

 

196,659

 

 

 

 

 

 

 

 

 

 

 

 

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO

   AMOUNTS REPORTED WITHIN THE CONDENSED CONSOLIDATED BALANCE SHEETS:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

216,883

 

 

$

 

183,138

 

Restricted cash

 

 

 

7,892

 

 

 

 

3,659

 

Restricted and escrow cash included in other noncurrent assets

 

 

 

7,035

 

 

 

 

9,862

 

Total cash, cash equivalents and restricted cash

 

$

 

231,810

 

 

$

 

196,659

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

 

Interest paid

 

$

 

62,885

 

 

$

 

21,814

 

Income taxes paid , net

 

 

 

38,898

 

 

 

 

186

 

NON-CASH FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Payables for capital expenditures

 

 

 

23,048

 

 

 

 

7,642

 

 

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


ELDORADO RESORTS, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1. Organization and Basis of Presentation

Organization

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

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.

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

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

As of March 31, 2019, we owned and operated the following properties:

Eldorado Resort Casino Reno (Eldorado Reno)A 814-room hotel, casino and entertainment facility connected via an enclosed skywalk to Silver Legacy and Circus Reno located in downtown Reno, Nevada that includes 1,1251,117 slot machines and 4636 table games;

Silver Legacy Resort Casino (Silver Legacy)A 1,711-room1,685-room themed hotel and casino connected via an enclosed skywalk to Eldorado Reno and Circus Reno that includes 1,1871,119 slot machines, 6348 table games and a 13 table13-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 712722 slot machines and 24 table games;machines; 

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 1,3971,388 slot machines, 52 table games and an eight tableeight-table poker room;

Mountaineer Casino, Racetrack & Resort (Mountaineer)A 357-room hotel, casino, entertainment and live thoroughbred horse racing facility located on the Ohio River at the northern tip of West Virginias northwestern panhandle that includes 1,5081,486 slot machines, and 36 table games, including a 10 table poker room;

Presque Isle Downs & Casino (Presque Isle Downs)A casino and live thoroughbred horse racing facility with 1,593 slot machines, 33 table games and a seven table10-table poker room located in Erie, Pennsylvania;room;

Eldorado Gaming Scioto Downs (Scioto Downs)A modern racino offering 2,2452,238 video lottery terminals (“VLTs”), harness racing and a 118-room third party hotel connected to Scioto Downs located 15 minutes from downtown Columbus, Ohio;Ohio.

Isle Casino HotelBlack Hawk (“Isle Black Hawk”)A land-based casino on an approximately 10-acre site in Black Hawk, Colorado that includes 1,026966 slot machines, 2728 table games, a nine table10-table poker room and a 238-room hotel;

Lady Luck CasinoBlack Hawk (“Lady Luck Black Hawk”)A land-based casino across the intersection from Isle Casino Hotel in Black Hawk Colorado, that includes 452442 slot machines, 10seven table games five poker tables and a 164-room hotel with a parking structure connecting Isle Casino Hotel-BlackBlack Hawk and Lady Luck Casino-BlackBlack 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 1,455 slot machines and a 45 table poker room. In April 2018, the Company announced the formation of a joint venture with the Cordish Companies to master plan and develop a mixed-use entertainment and hospitality destination expected to be located on unused land adjacent to the casino and racetrack;


 

Isle Casino BettendorfRacing Pompano Park (“Bettendorf”Pompano”)A land-based single-level casino located off Interstate 74and harness racing track on an approximately 223-acre owned site in Bettendorf, IowaPompano Beach, Florida that includes 9781,596 slot machines and 20 table games with two hotel towers with 509 hotel rooms;a 39-table poker room;

Isle Casino Bettendorf (“Bettendorf”)A land-based single-level casino located off Interstate 74 in Bettendorf, Iowa that includes 969 slot machines and 15 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 940939 slot machines, 2523 table games, and a 194-room hotel;

Isle of Capri Casino Hotel Lake Charles (“Lake Charles”)A gaming vessel on an approximately 19 acre19-acre site in Lake Charles, Louisiana, with 1,1731,164 slot machines, 4734 table games, including 1311 poker tables, and two hotels offering 493 rooms;

Isle of Capri Casino Lula (“Lula”)Two dockside casinos in Lula, Mississippi with 875862 slot machines and 2025 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 616607 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 893881 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 872863 slot machines, and 2420 table games includingand four poker tables;

Lady Luck Casino Caruthersville (“Caruthersville”)—A riverboat casino located along the Mississippi River in Caruthersville, Missouri that includes 516507 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 966938 slot machines and 1813 table games;  and

Lady LuckTropicana Casino Nemacolinand Resort, Atlantic City (“Nemacolin”Trop AC”)A casino propertyand resort situated on approximately 15 acres with approximately 660 feet of ocean frontage in Atlantic City, New Jersey that includes 2,464 slot machines, 107 table games, 18 poker tables and 2,366 hotel rooms;

Tropicana Evansville (“Evansville”)—A casino hotel and entertainment complex in Evansville, Indiana featuring 1,128 slot machines, 33 table games, eight poker tables and two on-site hotels with a total of 338 rooms;

Lumière Place Casino (“Lumière”)—A casino located on approximately 20 acres, located in historic downtown St. Louis, Missouri near business and entertainment districts and overlooks the 2,000-acre Nemacolin Woodlands ResortMississippi River with 1,401 slot machines, 48 table games, 10 poker tables and 494 hotel rooms;

Tropicana Laughlin Hotel and Casino (“Laughlin”)—A casino in Western PennsylvaniaLaughlin, Nevada that includes 600895 slot machines, 20 table games and 1,487 hotel rooms;

MontBleu Casino Resort & Spa (“MontBleu”)—A casino situated on approximately 21 acres in South Lake Tahoe, Nevada surrounded by the Sierra Nevada Mountains featuring 474 slot machines, 17 table games and 438 hotel rooms;

Trop Casino Greenville (“Greenville”)—A landside gaming facility located in Greenville, Mississippi with 590 slot machines, 10 table games and 40 hotel rooms;

Belle of Baton Rouge Casino & Hotel (“Baton Rouge”)—A dockside riverboat situated on approximately 23 acres on the Mississippi River in the downtown historic district of Baton Rouge featuring 773 slot machines, 14 table games and 288 hotel rooms; and

Grand Victoria Casino (“Elgin”)—A casino located in Elgin, Illinois featuring 1,088 slot machines and 2830 table games.

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

Reclassifications

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


Basis of Presentation

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

The financial informationexecutive decision maker of our Company reviews operating results, assesses performance and makes decisions on a “significant market” basis. Management views each of our casinos as an operating segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, and their management and reporting structure. Prior to the Elgin and Tropicana acquisitions, the Company’s principal operating activities occurred in four geographic regions and reportable segments. Following the Elgin and Tropicana acquisitions, a fifth segment, Central, was added. The reportable segments are based on the similar characteristics of the operating segments within the regions in which they operate: West, Midwest, South, East, and Central. (See Note 16 for a listing of properties included for periods prior to our acquisition of Isle are those of ERI and its subsidiaries. in each segment).                                                                                                      

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

These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.2018.

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

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


services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.2019

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

In February 2016 (as amended through December 2018), the FASB issued ASU No. 2016-02 codified as Accounting Standards Codification (“ASC”) 842, Leases, (“ASC 842”) which addresses the recognition and measurement of leases. Under the new guidance, for all leases, (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,lease. The liability is measured on a discounted basis, andbasis.  Lessees will also recognize 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 early2018. ASC 842 requires a transition adoption permitted. Lessees and lessors must applyelection using either 1) a modified retrospective approach with periods prior to the adoption date being recast or 2) a prospective approach with a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption date with prior periods continuing to be reported under prior lease accounting guidance. 

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

Currently, we do not have any material capital leases nor any material

Our operating leases, wherein which we are the lessor. Our operating leases, primarily relating to certain ground leases and slot machines or VLTs, will belessee, are recorded on the balance sheet as ana ROU asset with a corresponding lease liability. The lease liability which will be amortized usingremeasured each reporting period with a corresponding change to the effective interest rate methodROU asset. ROU assets and lease liabilities for operating leases totaled $282.4 million and $287.1 million, respectively, as payments are made.of March 31, 2019. The ROU asset will be depreciated on a straight-line basis and recognized as lease expense. The qualitative and quantitative effects of adoption of ASU 2016-02 are still being analyzed, andthis guidance did not have an impact on net income; however, upon adoption we are in the processrecorded a cumulative adjustment to our retained earnings of evaluating the full effect the new guidance will have on our consolidated financial statements and any new considerations with respect to any pending acquisitions.

In November 2016, ASU No. 2016-18 was issued$4.7 million, net of tax, primarily related to the inclusion of restricted cash in the statement of cash flows. This new guidance requires that a statement of cash flows present the change during the period in the total of cash, cash equivalentsCompany’s lease and amounts generally described as restricted cash or restricted cash equivalent. This update is effective in fiscal years, including interim periods, beginning after December 15, 2017. The Company retrospectively adopted this guidance as of December 31, 2017. Upon adoption, the Company included a reconciliation of Cash and cash equivalents and restricted cash reported within the Consolidated Balance Sheets to the total shown in the Consolidated Statements of Cash Flows. Adoptionsmanagement agreements at its Bettendorf location. (See Note 2 for more information).  Adoption of this guidance had no otherdid not have a material impact on the Consolidated Financial Statements or disclosures.Company’s other financing leases.


Certain amounts have been retrospectively reclassified for the three months ended March 31, 2017Pronouncements to conform to the current period presentation and reflect the changeBe Implemented in the Company’s Consolidated Statements of Cash Flows required with the adoption of ASU No. 2016-15 as of January 1, 2018 related to the classification of certain items on the statement of cash flows and ASU No 2016-18 as of December 31, 2017 related to the inclusion of restricted cash in the statement of cash flows as further described above.Future Periods

In January 2017,June 2016 (modified in November 2018), the FASB issued ASU No. 2017-01, “Business CombinationsNo 2016-13, Financial InstrumentsClarifyingCredit Losses related to timing on recognizing impairment losses on financial assets.  The new guidance lowers the Definitionthreshold on when losses are incurred, from a determination that a loss is probable to a determination that a loss is expected.  The change in guidance will be applicable to our evaluation of a Business.” This amendmentthe CRDA investments (see Note 8).  The guidance is intended to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisition (or disposals) of assets or businesses. Amendments in this update provide a more robust framework to use in determining when a set of assets and activities is a business and to provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. The amendments are effective for interim and annual periods beginning after December 15, 2017,2019, and early adoption is allowed for interim and annual periods beginning after December 15, 2018.  Adoption of the guidance requires a modified-retrospective approach and a cumulative adjustment to retained earnings to the first reporting period that the update is effective.  We expect to adopt the new guidance on January 1, 2020 and currently we do not expect a cumulative effect on our Consolidated Financial Statements.

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

In August 2018, the transaction has not been reported in financial statements that have beenFASB issued or made availableASU No 2018-14, Compensation –Retirement Benefits – Defined Benefit Plans – General.  This amendment improves disclosures over defined benefit plans and is effective for issuanceinterim and (2) transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance.annual periods ending after December 15, 2020 with early adoption allowed.  We adoptedanticipate adopting this accounting standardamendment during the first quarter of 2018, which did2021, and do not expect it to have ana significant impact on our consolidated financial statements,Consolidated Financial Statements.

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

Note 2. Leases

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

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

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

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


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

Leases

Classification on the Balance Sheet

March 31, 2019

Assets

Operating lease ROU assets

Other assets, net

$

282,363

Finance lease ROU assets

Property and equipment, net(1)

$

949,839

Liabilities

Current

Operating

Accrued other liabilities

$

20,232

Finance

Current portion of long-term debt

$

314

Noncurrent

Operating

Other long-term liabilities

$

266,898

Finance

Long-term financing obligation and debt

$

962,685

(1)

Finance lease ROU assets are recorded net of accumulated depreciation of $8.1 million as of March 31, 2019.

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

March 31, 2019

Weighted Average Remaining Lease Term

Operating leases

34.6 years

Finance leases

34.5 years

Weighted Average Discount Rate

Operating leases(1)

7.1%

Finance leases

10.2%

(1)

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

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

Three Months Ended

March 31, 2019

Operating lease cost

Operating lease cost

$

7,456

Short-term and variable lease cost

1,975

Finance lease cost

Interest expense on lease liabilities

24,603

Amortization of ROU assets

2,511

Total lease cost

$

36,545

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

Three Months Ended

March 31, 2019

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows for operating leases

$

7,840

Operating cash flows for finance leases

$

21,934


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

 

 

Operating Leases

 

 

Finance Leases

 

Year ending December 31,

 

 

 

 

 

 

 

 

 

 

2019 (excluding the three months ended March 31, 2019)

 

$

 

21,216

 

 

$

 

66,370

 

2020

 

 

 

24,331

 

 

 

 

89,227

 

2021

 

 

 

22,698

 

 

 

 

90,463

 

2022

 

 

 

21,754

 

 

 

 

91,745

 

2023

 

 

 

21,783

 

 

 

 

92,990

 

Thereafter

 

 

 

832,524

 

 

 

 

3,506,672

 

Total future minimum lease payments

 

 

 

944,306

 

 

 

 

3,937,467

 

Less: amount representing interest

 

 

 

(657,176

)

 

 

 

(3,394,568

)

Present value of future minimum lease payments

 

 

 

287,130

 

 

 

 

542,899

 

Less: current lease obligations

 

 

 

(20,232

)

 

 

 

(314

)

Plus: residual values - GLPI

 

 

 

 

 

 

 

420,100

 

Long-term lease obligations

 

$

 

266,898

 

 

$

 

962,685

 

Note 2.3. Revenue Recognition

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


Casino Revenue and Pari-mutuel Commissions

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

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

Loyalty Programs and Other Contract Obligations

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

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

The Company’s liability for its loyalty point performance obligations totaled $11.5 million and $11.8 million at March 31, 2018 and December 31, 2017, respectively. Historically, the Company’s loyalty points earned and redeemed are substantially constant over time, which results in the loyalty point performance obligation balance remaining fairly consistent across our reporting periods.

Non-gaming Revenue

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

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

Complimentaries

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

The Company offers discretionary coupons and other discretionary complimentaries to customers outside of the player loyalty program. The retail value of complimentary food, beverage, hotel rooms and other services provided to customers including


loyalty point redemptions, is recognized in revenues when the goods or services are transferredas a reduction to the customer.revenues for the department which issued the complimentary and a credit to the revenue for the department redeemed. Complimentaries provided by third parties at the discretion and under the control of the Company is recorded as an expense when incurred. The Company’s revenues included complimentaries and loyalty point redemptions of $47.2 million and $23.7 million for the three months ended March 31, 2018 and 2017, respectively.

Adoption of ASC Topic 606

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

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

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

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

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

 

 

Three Months Ended March 31, 2017

 

 

 

As Reported

 

 

Adjustments

 

 

As Adjusted

 

Gross revenues

 

$

 

219,546

 

 

$

 

(17,153

)

 

$

 

202,393

 

Promotional allowances

 

 

 

(18,621

)

 

 

 

18,621

 

 

 

 

 

Net revenues

 

$

 

200,925

 

 

$

 

1,468

 

 

$

 

202,393

 

Operating income (loss)

 

$

 

14,149

 

 

$

 

(121

)

 

$

 

14,028

 

Net income (loss)

 

$

 

1,021

 

 

$

 

(76

)

 

$

 

945

 


The Company’s consolidated statement of incomeoperations presents net revenue disaggregated by type or nature of the good or service (i.e., casino, pari-mutuel, food and beverage, hotel and other). A summary of net revenues disaggregated by type of revenue and reportable segment is presented below (amounts in thousands). Refer to Note 1316 for a discussion of the Company’s reportable segments.

 


 

Three Months Ended March 31, 2018

 

 

Three Months Ended March 31, 2019

 

 

West

 

 

Midwest

 

 

South

 

 

East

 

 

Corporate

and Other

 

 

Total

 

 

West

 

 

Midwest

 

 

South

 

 

East

 

 

Central

 

 

Corporate

and Other

 

 

Total

 

Casino

 

$

 

49,734

 

 

$

 

88,359

 

 

$

 

97,509

 

 

$

 

103,856

 

 

$

 

 

 

$

 

339,458

 

 

$

 

53,571

 

 

$

 

85,169

 

 

$

 

105,819

 

 

$

 

124,509

 

 

$

 

97,810

 

 

$

 

 

 

$

 

466,878

 

Pari-mutuel commissions

 

 

 

 

 

 

 

 

3,409

 

 

 

 

661

 

 

 

 

 

 

 

 

4,070

 

 

 

 

 

 

 

 

 

3,531

 

 

 

 

442

 

 

 

 

 

 

 

 

 

 

 

 

3,973

 

Food and beverage

 

 

23,211

 

 

 

6,916

 

 

 

13,860

 

 

 

 

8,211

 

 

 

 

 

 

 

 

52,198

 

 

 

27,906

 

 

 

6,087

 

 

 

14,709

 

 

 

 

14,721

 

 

 

 

11,786

 

 

 

 

 

 

 

 

75,209

 

Hotel

 

 

19,430

 

 

 

3,637

 

 

 

5,992

 

 

 

 

1,682

 

 

 

 

 

 

 

 

30,741

 

 

 

27,415

 

 

 

3,622

 

 

 

6,337

 

 

 

 

19,997

 

 

 

 

7,320

 

 

 

 

 

 

 

 

64,691

 

Other

 

 

 

7,204

 

 

 

 

1,883

 

 

 

 

2,030

 

 

 

 

2,481

 

 

 

 

127

 

 

 

 

13,725

 

 

 

 

9,203

 

 

 

 

1,909

 

 

 

 

2,318

 

 

 

 

6,564

 

 

 

 

3,556

 

 

 

 

1,522

 

 

 

 

25,072

 

Net revenues

 

$

 

99,579

 

 

$

 

100,795

 

 

$

 

122,800

 

 

$

 

116,891

 

 

$

 

127

 

 

$

 

440,192

 

 

$

 

118,095

 

 

$

 

96,787

 

 

$

 

132,714

 

 

$

 

166,233

 

 

$

 

120,472

 

 

$

 

1,522

 

 

$

 

635,823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2017

 

 

Three Months Ended March 31, 2018

 

 

West

 

 

Midwest

 

 

South

 

 

East

 

 

Corporate

and Other

 

 

Total

 

 

West

 

 

Midwest

 

 

South

 

 

East

 

 

Central

 

 

Corporate

and Other

 

 

Total

 

Casino

 

$

 

23,833

 

 

$

 

 

 

$

 

23,169

 

 

$

 

94,552

 

 

$

 

 

 

$

 

141,554

 

 

$

 

49,734

 

 

$

 

88,359

 

 

$

 

97,509

 

 

$

 

103,856

 

 

$

 

 

 

$

 

 

 

$

 

339,458

 

Pari-mutuel commissions

 

 

 

 

 

 

 

 

 

 

 

 

636

 

 

 

 

 

 

 

 

636

 

 

 

 

 

 

 

 

 

3,409

 

 

 

 

661

 

 

 

 

 

 

 

 

 

 

 

 

4,070

 

Food and beverage

 

 

19,492

 

 

 

 

 

 

5,734

 

 

 

 

7,195

 

 

 

 

 

 

 

 

32,421

 

 

 

23,211

 

 

 

6,916

 

 

 

13,860

 

 

 

 

8,211

 

 

 

 

 

 

 

 

 

 

 

 

52,198

 

Hotel

 

 

14,651

 

 

 

 

 

 

2,924

 

 

 

 

1,730

 

 

 

 

 

 

 

 

19,305

 

 

 

19,430

 

 

 

3,637

 

 

 

5,992

 

 

 

 

1,682

 

 

 

 

 

 

 

 

 

 

 

 

30,741

 

Other

 

 

 

5,512

 

 

 

 

 

 

 

 

733

 

 

 

 

2,174

 

 

 

 

58

 

 

 

 

8,477

 

 

 

 

7,204

 

 

 

 

1,883

 

 

 

 

2,030

 

 

 

 

2,481

 

 

 

 

 

 

 

 

127

 

 

 

 

13,725

 

Net revenues

 

$

 

63,488

 

 

$

 

 

 

$

 

32,560

 

 

$

 

106,287

 

 

$

 

58

 

 

$

 

202,393

 

 

$

 

99,579

 

 

$

 

100,795

 

 

$

 

122,800

 

 

$

 

116,891

 

 

$

 

 

 

$

 

127

 

 

$

 

440,192

 

 

Contract and Contract Related Liabilities

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

The following table summarizes the activity related to contract and contract-related liabilities:

 

 

Outstanding Chip Liability

 

 

Player Loyalty Liability

 

 

Customer Deposits and Other Deferred Revenue

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Balance at January 1

 

$

 

8,930

 

 

$

 

4,743

 

 

$

 

17,639

 

 

$

 

11,752

 

 

$

 

27,588

 

 

$

 

5,487

 

Balance at March 31

 

 

 

8,775

 

 

 

 

5,071

 

 

 

 

17,285

 

 

 

 

10,823

 

 

 

 

175,915

 

 

 

 

6,642

 

Increase / (decrease)

 

$

 

(155

)

 

$

 

328

 

 

$

 

(354

)

 

$

 

(929

)

 

$

 

148,327

 

 

$

 

1,155

 

The change in customer deposits and other deferred revenue during the three months ended March 31, 2019 is primarily attributed to the Company’s interests in William Hill, which is recorded in other long term liabilities on the Consolidated Balance Sheet (see Note 7 for more information).


Note 4. Acquisitions, Preliminary Purchase Price Accounting and Pro Forma Information

Tropicana

Acquisition Summary

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

Transaction expenses related to the Tropicana Acquisition for the three months ended March 31, 2019 and 2018 totaled $1.5 million and $1.0 million, respectively.

Preliminary Purchase Price Accounting

Final Purchase Price Accounting – Isle of Capri

On May 1, 2017, the Company completed its acquisition of Isle. As of March 31, 2018, the Company finalized its purchase price accounting related to the Isle Acquisition. The total purchase consideration for the Tropicana Acquisition was $927.3 million. The estimated purchase consideration in the Isle Acquisitionacquisition was determined with reference to theits acquisition date fair value on the date of the Merger Agreement as follows:

Purchase consideration calculation (dollars in thousands, except shares and stock price)

 

Shares

 

 

Per share

 

 

 

 

Cash paid for outstanding Isle common stock (1)

 

 

 

 

 

 

 

 

 

 

 

$

 

552,050

 

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

 

 

 

28,468,182

 

 

$

 

19.12

 

 

 

 

544,312

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

828,000

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

10,383

 

Purchase consideration

 

 

 

 

 

 

 

 

 

 

 

$

 

1,934,745

 

(1)

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

(2)

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

(3)

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

(4)

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


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

 

Current and other assets, netPurchase consideration calculation (dollars in thousands)

Cash consideration paid

 

$

 

135,925640,000

Lumière Loan

246,000

Cash paid to retire Tropicana's long-term debt

35,000

ERI portion of taxes due

6,333

Purchase consideration

$

927,333

The fair values are based on management’s analysis including preliminary work performed by third party valuation specialists, which are subject to finalization and review. The purchase price accounting for Tropicana is preliminary as it relates to determining the fair value of certain assets and liabilities, including goodwill, and is subject to change.  The following table summarizes the preliminary allocation of the purchase consideration to the identifiable assets acquired and liabilities assumed of Tropicana, with the excess recorded as goodwill as of March 31, 2019 (dollars in thousands):  

Current and other assets

$

183,292

 

Property and equipment

 

 

 

908,816432,758

Property subject to the financing obligation

957,300

 

Goodwill

 

 

 

709,087220,482

 

Intangible assets (i)

 

 

 

517,470247,976

 

Other noncurrent assets

 

 

 

15,08238,276

 

Total assets

 

 

 

2,286,3802,080,084

 

Current liabilities

 

 

 

(144,306168,856

)

Deferred income taxes (ii)Financing obligation to GLPI

 

 

 

(189,952957,300

)

Other noncurrentNoncurrent liabilities

 

 

 

(17,37726,595

)

Total liabilities

 

 

 

(351,6351,152,751

)

Net assets acquired

 

$

 

1,934,745927,333

 

 

(i)

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

(ii)

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

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

Valuation methodologies under both a market and income approach used for the identifiable net assets acquired in the IsleTropicana Acquisition make use of Level 1 and Level 3 inputs including quoted prices in active markets and discounted cash flows using current interest rates and are provisional pending development of a final valuation.flows.

Trade receivables and payables, inventoryinventories 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 IsleTropicana Acquisition Date, based on management’s judgment and estimates.date.


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

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

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

The fair value of the gaming licenses was determined using the multi period excess earnings or replacement cost methodology, based on whether the respective states’ legislation.license resides in gaming jurisdictions where competition is limited to a specified number of licensed gaming operators. The excess earnings methodology which is an income approach methodology that allocatesestimates the projected cash flows of the business attributable to the gaming license intangible assets lessasset, which is net of charges for the use of other identifiable assets of Islethe business including working capital, fixed assets and other intangible assets. This methodology was considered appropriate as the gaming licenses are the primary asset of Isle and the licenses are linked to each respective facility. Under the respective state’s gaming legislation, the property specific licenses can only be acquired if a theoretical


buyer were to acquire each existing facility. The existing licenses could not be acquired and used for a different facility. The properties’ estimated future cash flows were the primary assumption in the respective valuations. Cash flow estimates included net gaming revenue, gaming operating expenses, general and administrative expenses, and tax expense. The replacement cost methodology is a cost approach methodology based on replacement or reproduction cost of the gaming license as an indicator of fair value.

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

TrademarksTrade names are valued using the relief from royalty method, which presumes that without ownership of such trademarks, ERIthe Company would have to make a stream of payments to a brand or franchise owner in return for the right to use their name. By virtue of this asset, ERIthe Company avoids any such payments and recordrecords the related intangible value of ERI’sthe Company’s ownership of the brand name. The primary assumptions in the valuation included revenue, pre-tax royalty rate, and tax expense.

Trade names were valued using the relief‑from‑royalty method. The loyalty program was valued using a comparative business valuation method. ManagementCompany has assigned trade names an indefinite useful life in accordance with its review of applicable guidance of ASC Topic No. 350, “Intangibles-Goodwill and Other” (“ASC 350”). The standard required ERI to consider,the trade names after considering, among other things, the expected use of the asset, the expected useful life of other related assetassets or asset group,groups, any legal, regulatory, or contractual provisions that may limit the useful life, ERI’sthe Company’s own historical experience in renewing similar arrangements, the effects of obsolescence, demand and other economic factors, and the maintenance expenditures required to obtain the expected cash flows. In that analysis, ERIthe Company determined that no legal, regulatory, contractual, competitive, economic or other factors limit the useful lives of these intangible assets.


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

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

For the three months endedperiod from January 1, 2019 through March 31, 2018, Isle2019, Tropicana generated revenuenet revenues of $231.9$207.3 million and net income of $30.4$4.2 million.

Elgin

Acquisition Summary

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

Transaction expenses attributedrelated to the IsleElgin Acquisition are reported on the accompanying statements of income related to legal, accounting, financial advisory services, severance, stock awardstotaled $31,000 and other costs and totaled $1.0 million and $1.6$0.6 million for the three months ended March 31, 20182019 and 2017,2018, respectively.

Preliminary Purchase Price Accounting – Elgin

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

Purchase consideration calculation (dollars in thousands)

Cash consideration paid

$

327,500

Working capital and other adjustments

1,304

Purchase consideration

$

328,804

The fair values are based on management’s analysis including preliminary work performed by third party valuation specialists, which are subject to finalization and review.  The purchase price accounting for Elgin is preliminary as it relates to determining the fair value of the long-lived assets, including goodwill, and is subject to change. The following table summarizes the preliminary allocation of the purchase consideration to the identifiable assets acquired and liabilities assumed of Elgin, with the excess recorded as goodwill as of March 31, 2019 (dollars in thousands):

Cash and cash equivalents

$

25,349

Property and equipment

60,792

Goodwill

59,774

Intangible assets (i)

205,296

Other noncurrent assets

915

Total assets

352,126

Current liabilities

(21,572

)

Noncurrent liabilities

(1,750

)

Total liabilities

(23,322

)

Net assets acquired

$

328,804

(i)

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

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


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

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

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

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

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

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

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

For the period from January 1, 2019 through March 31, 2019, Elgin generated net revenues of $37.0 million and net income of $5.5 million.


Unaudited Pro Forma Information

Tropicana

The following unaudited pro forma information presents the results of operations of the Company for the three months ended March 31, 2017,2018, as if only the IsleTropicana Acquisition had occurred on January 1, 2017 (in thousands).

 

 

 

Three Months Ended

 

 

 

March 31, 2017

2018

 

Net operating revenues

 

$

 

448,469

658,006

 

Net lossincome

 

 

 

(30,303

)14,441

 

 

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

Elgin

The following unaudited pro forma information presents the results of operations of the Company for the three months ended March 31, 2018, as if only the Elgin Acquisition had occurred on January 1, 2017 (in thousands).

Three Months Ended

March 31, 2018

Net operating revenues

$

480,387

Net income

24,790

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

Note 4.5. Assets Held for Sale

On February 28, 2018, the Company entered into definitive agreements to sell substantially all of the assets and liabilities of Presque Isle Downs and Vicksburg to Churchill Downs Incorporated (“CDI”). Under the terms of the agreements, CDI willagreed to purchase Presque Isle Downs for cash consideration of approximately $178.9 million and Vicksburg for cash consideration of approximately $50.6 million, in each case subject to a customary working capital adjustment (the “Dispositions”). Additionally,adjustment. In conjunction with the classification of Vicksburg’s operations as assets held for sale at March 31, 2018 as a result of the announced sale to CDI, an impairment charge totaling $9.8 million was recorded relateddue to Vicksburg during the three months ended March 31, 2018 (see Note 6).carrying value exceeding the estimated net sales proceeds.

The Dispositions aredefinitive agreements provided that the dispositions were subject to receipt of required regulatory approvals, termination of the waiting period under the Hart-Scott-Rodino Act (the “HSR Act”) and other customary closing conditions, including, in the case of Presque Isle


Downs, the prior closing of the sale of Vicksburg or the entry into an agreement to acquire another asset of the Company. On May 7, 2018, the Company and CDI each received a Request for Additional Information and Documentary Materials, often referred to as a “Second Request,” from the Federal Trade Commission (“FTC”) in connection with the FTC’sits review of the Vicksburg acquisition. The Second Request was issued under

On July 6, 2018, in consideration of the HSR Act. Issuance oftime and expense needed to reply to the Second Request, extends the waiting period under the HSR Act until 30 days after the Company and CDI have substantially complied with the Second Request, unless the waiting period is extended voluntarily byentered into a termination agreement and release pursuant to which the parties oragreed to terminate the asset purchase agreement with respect to Vicksburg and to enter into an asset purchase agreement pursuant to which CDI would acquire and assume the rights and obligations to operate Nemacolin (the “Vicksburg Termination Agreement”). The Vicksburg Termination Agreement also provided that CDI would pay the Company a $5.0 million termination fee upon execution of a definitive agreement with respect to the Nemacolin transaction, which was recorded as proceeds from terminated earlier bysale on the FTC. TheConsolidated Statements of Income.  On August 10, 2018, the Company entered into a definitive agreement to sell substantially all of the assets and liabilities of Nemacolin to CDI.  Under the terms of the agreement, CDI continueagreed to cooperate fully withpurchase Nemacolin for cash consideration of approximately $0.1 million, subject to a customary working capital adjustment. As a result of the FTC in its review. The Dispositions are expectedagreement to closesell Nemacolin, an impairment charge of $3.8 million was recorded in the third or fourth quarter of 2018 subjectdue to satisfaction of closing conditions (including terminationthe carrying value of the waiting period undernet property and equipment being sold exceeding the HSR Act and, in the caseestimated net sales proceeds.


The sale of Presque Isle Downs the prior closing of theclosed on January 11, 2019 resulting in a gain on sale of Vicksburg or$21.6 million for the entry into an agreementthree months ended March 31, 2019. The sale of Nemacolin closed on March 8, 2019 resulting in a gain on sale of $0.5 million for the three months ended March 31, 2019.

Prior to acquire another assetthe respective closing dates, the dispositions of Nemacolin and Presque Isle Downs, both of which were reported in the Company.

The DispositionsEast segment, met the requirements for presentation as assets held for sale under generally accepted accounting principlesprinciples. Due to the termination of the Vicksburg sale, Vicksburg was no longer presented as of March 31, 2018.an asset held for sale.

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

 

 

March 31, 2018

 

 

December 31, 2018

 

 

Vicksburg

 

 

Presque Isle

Downs

 

 

Total

 

 

Nemacolin

 

 

Presque Isle

Downs

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

 

110

 

 

$

 

2,083

 

 

$

 

2,193

 

 

$

 

272

 

 

$

 

2,208

 

 

$

 

2,480

 

Inventories

 

 

283

 

 

 

1,530

 

 

 

1,813

 

 

 

79

 

 

 

1,607

 

 

 

1,686

 

Prepaid expenses and other

 

 

232

 

 

 

1,072

 

 

 

1,304

 

 

 

370

 

 

 

773

 

 

 

1,143

 

Property and equipment, net

 

 

35,615

 

 

 

68,039

 

 

 

103,654

 

 

 

1,784

 

 

 

70,134

 

 

 

71,918

 

Goodwill

 

 

8,806

 

 

 

3,122

 

 

 

11,928

 

 

 

 

 

 

3,122

 

 

 

3,122

 

Other intangibles, net

 

 

 

2,720

 

 

 

 

75,422

 

 

 

 

78,142

 

 

 

 

 

 

 

 

75,422

 

 

 

 

75,422

 

Assets held for sale

 

$

 

47,766

 

 

$

 

151,268

 

 

$

 

199,034

 

 

$

 

2,505

 

 

$

 

153,266

 

 

$

 

155,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

181

 

 

$

 

688

 

 

$

 

869

 

 

$

 

147

 

 

$

 

683

 

 

$

 

830

 

Accrued payroll and related

 

 

183

 

 

 

537

 

 

 

720

 

 

 

838

 

 

 

596

 

 

 

1,434

 

Accrued property and other taxes

 

 

 

 

 

61

 

 

 

61

 

 

 

552

 

 

 

71

 

 

 

623

 

Accrued other liabilities

 

 

 

367

 

 

 

 

3,381

 

 

 

 

3,748

 

 

 

1,628

 

 

 

3,659

 

 

 

5,287

 

Other long-term liabilities

 

 

105

 

 

 

 

 

 

105

 

Long-term obligation

 

 

 

2,412

 

 

 

 

 

 

 

 

2,412

 

Liabilities related to assets held for sale

 

$

 

731

 

 

$

 

4,667

 

 

$

 

5,398

 

 

$

 

5,682

 

 

$

 

5,009

 

 

$

 

10,691

 

 

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

 

 

Three Months ended March 31, 2019

 

 

Three Months ended March 31, 2018

 

 

 

Presque Isle Downs

 

 

Nemacolin

 

 

Presque Isle Downs

 

 

Nemacolin

 

Net operating revenues

 

$

 

3,235

 

 

$

 

4,836

 

 

$

 

33,177

 

 

$

 

8,494

 

Net (loss) income

 

 

 

(42

)

 

 

 

(754

)

 

 

 

2,135

 

 

 

 

(118

)

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

Note 5.6. Stock-Based Compensation and Stockholder’s Equity

Common Stock and Stock‑Based Awards

The Company has authorized common stock of 100,000,000200,000,000 shares, par value $0.00001 per share. In FebruaryJune 2018 the BoardCompany amended its certificate of Directors approved and adopted an amendment (the “Common Stock Amendment”)incorporation to the Company’s Restated Certificate of Incorporation, subject to approval by the Company’s stockholders that would increase the total number of authorized shares of common stock from 100,000,000 shares to 200,000,000 shares.

Share Repurchase Program

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


The Company acquired 223,823 shares of common stock at an aggregate value of $9.1 million and an average of $40.80 per share during the year ended December 31, 2018. No shares were repurchased during the three months ended March 31, 2019.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation.Compensation. Total stock-based compensation expense in the accompanying consolidated statementsConsolidated Statements of incomeIncome totaled $3.7$4.9 million and $1.7$3.7 million during the three months ended March 31, 2019 and 2018, respectively. These amounts are included in corporate expenses and, 2017, respectively.

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, 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. The stock ownership guidelines require our non-employee directors to hold shares of our common stock with a minimum value equal to five times the director’s annual cash base retainer fee. Prior to achievement of the minimum stock ownership guideline, RSU grants will vest immediately; however, settlement will be mandatorily deferred until termination of Board service. After minimum stock ownership is achieved, unless the director voluntarily elects to defer settlement of the RSUs, the RSUs will vest and be


settled immediately at the time of grant. 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 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.

Pursuant to the Merger 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 acquire Isle common stock (each an “Isle Stock Option”) that was outstanding immediately prior to the Isle Acquisition Date (whether vested or unvested), as of the Isle Acquisition Date, (i) continued to vest or accelerate (if unvested), asin the case may be, in accordance with the applicable Isle stock plan, the award agreement pursuant to which such Isle Stock Option was grantedof certain property positions, general 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 forthadministrative expenses in the Isle equity incentive plan,Company’s Consolidated Statements of Income. We recognized a reduction in income tax expense of $2.6 million and $3.4 million for the award agreement pursuantthree months ended March 31, 2019 and 2018, respectively, for excess tax benefits related 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 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).

On January 27, 2017, the Company granted 298,761 RSUs (time-based awards and performance awards with a two-year performance period) to executive officers and key employees, and 46,282 RSUs (time-based awards) to non-employee members of the BOD under the 2015 Plan. The performance awards granted in 2017 are subject to a two-year performance period (2017 and 2018), with a one‑year additional vesting requirement, resulting in a total vesting period of three years from the grant date. Performance achievement over the two-year performance period is measured by averaging the level of achievement attained during each of 2017 and 2018. PSUs are earned as follows: 50% of the target number of PSUs will be earned at threshold performance, 100% of the target number of PSUs will be earned at target performance, and up to 200% of the target number of PSUs will be earned at maximum performance. No award is earned if performance falls below the threshold level. Following the end of the two-year performance period, the vesting of earned PSUs are subject to an additional one-year service condition. The January 27, 2017, RSUs had a fair value of $15.50 per unit which was the NASDAQ closing price on that date. An additional 246,755 RSUs were also granted to key employees during the year ended December 31, 2017.

On January 26, 2018, the Company granted 242,939 RSUs (time-based awards and performance awards with a two-year performance period) to executive officers, key employees, and 32,284 RSUs (time-based awards) to non-employee members of the BOD under the 2015 Plan. The RSUs had a fair value of $33.05 per unit which was the NASDAQ closing price on that date. An additional 7,415 RSUs were granted at 116% of target following the finalization of actual results of the first year of the two-year 2017 performance period.stock-based compensation.

A summary of the RSUrestricted stock unit (RSU) activity for the three months ended March 31, 20182019 is presented in the following table:

 

 

 

 

Equity

Awards

 

 

 

Weighted-

Average Grant

Date

Fair Value

 

 

 

Weighted-

Average

Remaining

Contractual

Life

 

 

 

Aggregate Fair

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in years)

 

 

 

(in millions)

 

Unvested outstanding as of December 31, 2017

 

 

 

1,579,499

 

 

$

 

12.25

 

 

 

 

0.92

 

 

$

 

19.35

 

Granted (1)

 

 

 

282,638

 

 

 

 

32.59

 

 

 

 

 

 

 

 

 

 

 

Vested (2)

 

 

 

(665,704

)

 

 

 

5.91

 

 

 

 

 

 

 

 

 

 

 

Unvested outstanding as of March 31, 2018

 

 

 

1,196,433

 

 

$

 

20.59

 

 

 

 

1.58

 

 

$

 

24.63

 

 

 

 

Restricted Stock Units

 

 

 

 

 

Units

 

 

 

Weighted-

Average Grant

Date

Fair Value

 

 

 

 

 

 

 

 

 

 

(in millions)

 

 

Unvested outstanding as of December 31, 2018

 

 

 

1,283,372

 

 

$

 

23.93

 

 

Granted (1)

 

 

 

352,869

 

 

 

 

 

 

 

Vested

 

 

 

(352,584

)

 

 

 

 

 

 

Unvested outstanding as of March 31, 2019

 

 

 

1,283,657

 

 

$

 

32.19

 

 


(1)

Includes 78,674 of performance awards at 100% of target, 196,549 time-based awards at 100% of target and 7,415 of the first year of the two-year 2017 performance awards at 116% of target.

(2)

Represents 357,565 performance awards and 255,511 time-based awards granted in January 2015 which vested in January 2018, 9,786 IsleIncluded are 30,135 RSUs 10,558 time-based awards granted to a key employee in May 2017 and 32,284 awards granted to non-employee board members in January 2018 which vested immediately.of the Board of Directors during the three months ended March 31, 2019.

A summary

As of March 31, 2019 and 2018, the Company had $28.6 million and $16.6 million, respectively, of unrecognized compensation expense. The RSUs are expected to be recognized over a weighted-average period of 1.90 years and 1.58 years, respectively.

There was no ERI Stock Optionstock option activity for the three months ended March 31, 2019. Outstanding options as of March 31, 2019 totaled 135,956, of which 119,505 options were exercisable.

Note 7. Investments in and Advances to Unconsolidated Affiliates

Hampton Inn & Suites

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 land immediately adjacent to The Brew Brothers microbrewery and restaurant at Scioto Downs. The partnership constructed the hotel at a cost of $16.0 million and other investor members operate the hotel. In November 2017, the Company contributed $0.6 million to the partnership for its proportionate share of additional construction costs pursuant to the partnership agreement. At March 31, 2019 and December 31, 2018, is presentedthe Company’s investment in the following table:partnership totaled $1.2 million and $1.3 million, respectively, recorded in investment in and advances to unconsolidated affiliates on the Consolidated Balance Sheets, representing the Company’s maximum loss exposure. As of March 31, 2019 and December 31, 2018, the Company’s receivable from the partnership totaled $0.1 million and $0.3 million, respectively, and is reflected in due from affiliates on the Consolidated Balance Sheets.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

Weighted-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Average

 

 

 

 

 

 

 

 

 

 

Range of

 

 

Exercise

 

 

Remaining

 

 

Aggregate

 

 

 

Options

 

 

Exercise Prices

 

 

Price

 

 

Contractual Life

 

 

Intrinsic Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in years)

 

 

(in millions)

 

Outstanding and Exercisable as of

   December 31, 2017

 

 

271,852

 

 

$

3.94

 

 

$

15.60

 

 

$

 

9.63

 

 

 

 

5.22

 

 

$

 

6.4

 

Exchanged

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding and Exercisable as of

   March 31, 2018

 

 

271,852

 

 

$

3.94

 

 

$

15.60

 

 

$

 

9.63

 

 

 

 

4.97

 

 

$

 

6.2

 

Pompano Joint Venture

A summaryIn April 2018, the Company entered into a joint venture with Cordish Companies (“Cordish”) to master plan and develop a mixed-use entertainment and hospitality destination expected to be located on unused land adjacent to the casino and racetrack at the Company’s Pompano property. As the managing member, Cordish will operate the business and manage the development, construction, financing, marketing, leasing, maintenance and day-to-day operation of the ERI Restricted Stock Awards activityvarious phases of the project. Additionally, Cordish will be responsible for the three months endeddevelopment of the master plan for the project with the Company’s input and will submit it for the Company’s review and approval. The Company and Cordish have made initial


cash contributions of $250,000 each and could be required to make additional contributions to a maximum of $2.0 million ($1.0 million per member) at the request of the managing member. The Company has agreed to contribute land to the joint venture for the project. While the Company holds a 50% variable interest in the joint venture, it is not the primary beneficiary; as such the investment in the joint venture is accounted for using the equity method. The Company will participate evenly with Cordish in the profits and losses of the joint venture, which is included in income (loss) from unconsolidated affiliates on the Consolidated Statements of Income. At March 31, 2019 and December 31, 2018, is presentedthe Company’s investment in the following table:joint venture totaled $0.7 million and $0.6 million, respectively, recorded in investment in and advances to unconsolidated affiliates on the Consolidated Balance Sheets.

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Grant Date

 

 

 

Restricted Stock

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

Outstanding as of December 31, 2017

 

 

10,809

 

 

$

19.13

 

Vested

 

 

(2,403

)

 

 

19.13

 

Outstanding as of March 31, 2018

 

 

8,406

 

 

$

19.13

 

William Hill

There were no options exercisedIn September 2018, the Company entered into a 25-year agreement, which became effective January 29, 2019, with William Hill PLC and William Hill US, its U.S. subsidiary (together, “William Hill”) pursuant to which the Company (i) granted to William Hill the right to conduct betting activities in retail channels and under the Company’s first skin and third skin for online channels with respect to the Company’s current and future properties located in the United States and the territories and possessions of the United States, including Puerto Rico and the U.S. Virgin Islands and (ii) agreed that William Hill will have the right to conduct real money online gaming activities utilizing the Company’s second skin available with respect to properties in such territory.  Pursuant to the terms of the agreement, in January 2019 the Company received a 20% ownership interest in William Hill US as well as 13.4 million ordinary shares of William Hill PLC, which carry certain time restrictions on when they can be sold, and the Company will receive a revenue share from the operation of retail betting and online betting and gaming activities. “Skin” in the context of this agreement refers to Eldorado’s ability to grant to William Hill an online channel that allows William Hill to operate online casino and sports gaming activities in reliance on, and utilizing the benefit of, any licenses granted to Eldorado or expiredits subsidiaries. As of March 31, 2019, based on the Company’s existing sportsbook operations with William Hill, the Company’s receivable from William Hill totaled $3.1 million and is reflected in due from affiliates on the Consolidated Balance Sheets.

The Company is accounting for its investment in William Hill US under the equity method. The fair value of the Company’s initial investment in William Hill US of $128.9 million at January 29, 2019 was determined using Level 3 inputs. As of March 31, 2019, the carrying value of the Company’s interest in William Hill US was $130.3 million recorded in investment in and advances to unconsolidated affiliates on the Consolidated Balance Sheet. The Company also recorded deferred revenue associated with the ownership interest received in William Hill US and is recognizing revenue on a straight-line basis over the 25 year agreement term. The Company recognized revenue of $0.8 million during the three months ended March 31, 2018.

The Company’s unrecognized compensation cost for unvested restricted stock awards was $18,000 as2019. As of March 31, 2018.2019, the balance of the William Hill US deferred revenue totaled $128.1 million and is recorded in other long term liabilities on the Consolidated Balance Sheet.

As of March 31, 2019, the fair value of the William Hill PLC shares totaled $24.4 million, net of an unrealized loss of $2.8 million, and included in other assets, net on the Consolidated Balance Sheet. The Company also recorded deferred revenue associated with the William Hill PLC shares and is recognizing revenue on a straight-line basis over the 25 year agreement term. The Company recognized revenue of $0.2 million during the three months ended March 31, 2019. As of March 31, 2019, the balance of the William Hill PLC deferred revenue totaled $27.1 million and is recorded in other long term liabilities on the Consolidated Balance Sheet.

 


Note 6. Other and8. Intangible Assets, net and Other Long-Term Assets

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

 

 

 

March 31,

 

 

December 31,

 

 

 

 

 

 

2018

 

 

2017

 

 

 

Useful Life

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

Goodwill

 

$

 

719,255

 

 

$

 

747,106

 

 

 

Indefinite

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming licenses

 

$

 

801,774

 

 

$

 

877,174

 

 

 

Indefinite

Trade names

 

 

 

105,550

 

 

 

 

108,250

 

 

 

Indefinite

Trade names

 

 

 

5,100

 

 

 

 

6,700

 

 

 

1 - 3.5 years

Loyalty programs

 

 

 

20,193

 

 

 

 

21,820

 

 

 

1 - 3 years

Subtotal

 

 

 

932,617

 

 

 

 

1,013,944

 

 

 

 

Accumulated amortization trade names

 

 

 

(5,100

)

 

 

 

(6,290

)

 

 

 

Accumulated amortization loyalty programs

 

 

 

(10,407

)

 

 

 

(10,838

)

 

 

 

Total gaming licenses and other intangible assets

 

$

 

917,110

 

 

$

 

996,816

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-operating real property

 

$

 

14,030

 

 

$

 

18,069

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unamortized debt issuance costs - New Revolving

   Credit Facility

 

$

 

8,115

 

 

$

 

8,616

 

 

 

 

Restricted cash

 

 

 

9,862

 

 

 

 

9,886

 

 

 

 

Other

 

 

 

12,253

 

 

 

 

12,130

 

 

 

 

Total other assets, net

 

$

 

30,230

 

 

$

 

30,632

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

 

 

 

2019

 

 

2018

 

 

 

Useful Life

Goodwill

 

$

 

1,008,316

 

 

$

 

1,008,316

 

 

 

Indefinite

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming licenses

 

$

 

1,090,682

 

 

$

 

1,090,682

 

 

 

Indefinite

Trade names

 

 

 

187,929

 

 

 

 

187,929

 

 

 

Indefinite

Player loyalty programs

 

 

 

105,005

 

 

 

 

105,005

 

 

 

3 - 4 years

Subtotal

 

 

 

1,383,616

 

 

 

 

1,383,616

 

 

 

 

Accumulated amortization player loyalty programs

 

 

 

(29,252

)

 

 

 

(21,610

)

 

 

 

Total gaming licenses and other intangible assets, net

 

$

 

1,354,364

 

 

$

 

1,362,006

 

 

 

 

 


Goodwill represents the excess of the purchase prices of acquiring MTR Gaming and Isle over the fair market value of the net assets acquired. In conjunction with the classification of Vicksburg’s operations as assets held for sale (see Note 4) as a result of the announced sale to Churchill Downs Incorporated, an impairment charge totaling $9.8 million was recorded for the three months ended March 31, 2018 due to the carrying value exceeding the estimated net sales proceeds.

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

Amortization expense relatedwith respect to trade names andplayer loyalty programs for the three months ended March 31, 2019 and 2018 totaled $7.6 million and 2017 totaled $1.6 million, and $0.5 million, respectively, andwhich is included in depreciation and amortization expense in the consolidated statementsConsolidated Statements of income.Income. Such amortization expense is expected to be $3.5$23.0 million for the remainder of 20182019 and $4.7$27.4 million, $21.2 million and $1.6$4.2 million for the years ended December 31, 20192020, 2021 and 2020,2022, respectively.

Goodwill represents the excess of the purchase prices of acquiring MTR Gaming, Isle, Elgin and Tropicana over the fair market value of the net assets acquired. In conjunction with the classification of Vicksburg’s operations as assets held for sale at March 31, 2018 (see Note 7. Income Taxes5) as a result of the announced sale to CDI, an impairment charge totaling $9.8 million was recorded due to the carrying value exceeding the estimated net sales proceeds. The impairment reduced the value of goodwill in the South segment in 2018.

Other Assets, Net 

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

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

CRDA bonds and deposits, net

 

$

 

6,403

 

 

$

 

6,694

 

Unamortized debt issuance costs - Revolving

   Credit Facility

 

 

 

8,992

 

 

 

 

9,533

 

Non-operating real property

 

 

 

16,852

 

 

 

 

17,880

 

Long-term prepaid rent

 

 

 

164

 

 

 

 

20,198

 

Restricted cash and investments

 

 

 

39,556

 

 

 

 

15,064

 

ROU assets (see Note 2)

 

 

 

282,363

 

 

 

 

 

Other

 

 

 

12,158

 

 

 

 

14,077

 

Total other assets, net

 

$

 

366,488

 

 

$

 

83,446

 

The SEC staff issued Staff Accounting Bulletin (“SAB”) 118, which provides guidanceCRDA bonds have various contractual maturities that range up to 40 years. Actual maturities may differ from contractual maturities because of prepayment rights. The Company treats CRDA bonds as held-to-maturity since the Company has the ability and the intent to hold these bonds to maturity and under the CRDA, the Company is not permitted to do otherwise. After the initial determination of fair value, the Company analyzes the CRDA bonds for recoverability on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one yearquarterly basis based on management's historical collection experience and other information received from the Tax Act enactment date for companies to completeCRDA. If indications exist that the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effectsCRDA bond is impaired, additional valuation allowances are recorded.

Non-operating real property consists principally of those aspects of the Tax Actland and undeveloped properties for which the accounting under ASC 740 is complete. To the extent thatCompany has designated as non-operating and has declared its intent to sell such assets. As a company’s accountingresult of a pending sale offer for certain income tax effectsnon-operating real property located in Pennsylvania, the Company recognized an impairment charge of $1.0 million for the three months ended March 31, 2019.

Approximately ten acres of the Tax Actapproximately 20 acres on which Tropicana Evansville is incomplete but itsituated is ablesubject to determine a reasonable estimate, it must recordlease with the City of Evansville, Indiana. Under the terms of the agreement, a provisional estimatepre-payment of lease rent in the financial statements. Ifamount of $25 million was due at the commencement of the construction project. The prepayments will be applied against future rent in equal monthly amounts over a company cannot determine a provisional estimate to beperiod of 120 months which commenced upon the opening of the property in January 2018.  The current term of the lease expires November 30, 2027. Upon adoption of the new lease accounting guidance this pre-payment of rent is included with the Company’s ROU assets and no longer included in long-term prepaid rent.

In November 2018, we entered into a 20-year agreement with TSG pursuant to which we agreed to provide TSG with options to obtain access to our second skin for online sports wagering and third skin for real money online gaming and poker, in each case with respect to our properties in the financial statements, it should continue to apply ASC 740 onUnited States. Under the basisterms of the provisionsagreement, we will receive a revenue share from the operation of the tax laws that were in effect immediately beforeapplicable verticals by TSG under our licenses. Pursuant to the enactmentterms of the Tax Act.

WhileTSG agreement, we have not yet completed allreceived 1.1 million TSG common shares, and we may receive an additional $5.0 million in TSG common shares upon the exercise of the computations necessary or completed an inventory of our 2017 expenditures that qualify for immediate deductions, we have recorded a provisional benefitfirst option by TSG. We may also receive additional TSG common shares in the future based on TSG net gaming revenue generated in our current intentmarkets. The initial 1.1 million shares are subject to fully deduct all qualifying expenditures. This dida restriction on transfer and may not result in any significant change to our current income tax payable due to our federal and state net operating loss carry forwards.be sold until November 2019.


At March 31, 2019, the fair value of the Company’s shares of TSG totaled $17.3 million net of a liability to William Hill PLC of $8.7 million, and is recorded in restricted cash and investments on the Consolidated Balance Sheet. Upon the closing of TSG, the Company also recorded deferred revenue associated with the shares received and recognized revenue of $0.4 million during the three months ended March 31, 2019. As of March 31, 2019, the balance of the TSG deferred revenue totaled $18.2 million and is recorded in other long term liabilities on the Consolidated Balance Sheet.

In September 2018, we entered into a 25-year agreement, which became effective January 2019, with William Hill pursuant to which we received 13.4 million ordinary shares of William Hill PLC which carry certain time restrictions on when they can be sold. As of March 31, 2019, the fair value of the William Hill PLC shares totaled $24.4 million, net of an unrealized loss of $2.8 million, and is included in other assets, net on the Consolidated Balance Sheet.

Note 9. Income Taxes

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

For the three months ended March 31, 20182019 and 2017,2018, the Company’s tax expense was $2.110.4 million and $0.4$2.1 million, respectively. For the three months ended March 31, 2018 and 2017,2019, the difference between the effective rate and the statutory rate is attributed primarily due to non-deductible expenses, excess tax benefits associated with stock compensation, and state and local income taxes. For the three months ended March 31, 2018, the difference between the effective rate and the statutory rate is primarily due to state and local income taxes less excess tax benefits associated with stock compensation.

As of March 31, 2018 and 2017,2019, 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. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.

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

Note 10. Long-Term Financing Obligation

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

The fair value of the real estate assets and the related failed sale-leaseback financing obligations were estimated based on the present value of the estimated future lease payments over the lease term of 35 years, including renewal options, using an imputed discount rate of approximately 10.22%. The value of the failed sale-leaseback financing obligations is dependent upon assumptions regarding the amount of the lease payments and the estimated discount rate of the lease payments required by a market participant.

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


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

Building Base Rent: a fixed component equal to $60.9 million during the first year of the Master Lease, and thereafter escalated annually by 2%, subject to a cap that would cause the Internal Revenue Service in October of 2016 that its federal tax returnpreceding year’s adjusted revenue to rent ratio for the year ended December 31, 2014 had been selectedproperties in the aggregate not to fall below 1.20:1.00 for examination. In September 2017, the IRS informedfirst five years of the Master Lease and 1.80:1.00 thereafter; plus

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

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

Under the Master Lease, the Company is required to pay the following, among other things: lease payments to the underlying ground lessor for properties that they completedare subject to ground leases, facility maintenance costs, all insurance premiums for insurance with respect to the examination ofleased properties and the tax returnbusiness conducted on the leased properties, taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor and made no changes.all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties).

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

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

The future minimum payments related to the Master Lease financing obligation with GLPI at March 31, 2019 were as follows (in thousands):

2019 (excluding the three months ended March 31, 2019)

 

$

 

66,034

 

2020

 

 

 

89,168

 

2021

 

 

 

90,417

 

2022

 

 

 

91,691

 

2023

 

 

 

92,990

 

Thereafter

 

 

 

3,506,672

 

Total future payments

 

 

 

3,936,972

 

Less: amounts representing interest at 10.22%

 

 

 

(3,394,567

)

Plus: residual values

 

 

 

420,100

 

Financing obligation to GLPI

 

$

 

962,505

 

Total payments and interest expense related to the Master Lease were $21.9 million and $24.6 million, respectively, for the three months ended March 31, 2019. For the initial periods of the Master Lease, cash payments are less than the interest expense recognized, which causes the failed sale-leaseback obligation to increase during the initial years of the lease term.

The Master Lease contains certain covenants, including minimum capital improvement expenditures.


 

Note 8.11. Long-Term Debt and Other Long-Term Liabilities

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

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Term Loan

 

$

 

956,750

 

 

$

 

956,750

 

Term Loan

 

$

 

956,750

 

 

$

 

956,750

 

Less: Unamortized discount and debt issuance costs

 

 

 

(18,149

)

 

 

 

(18,748

)

 

 

 

(17,679

)

 

 

 

(18,426

)

Net

 

 

 

938,601

 

 

 

 

938,002

 

 

 

 

939,071

 

 

 

 

938,324

 

6% Senior Notes

 

 

 

875,000

 

 

 

 

875,000

 

6% Senior Notes due 2026

 

 

 

600,000

 

 

 

 

600,000

 

Less: Unamortized debt issuance costs

 

 

 

(19,485

)

 

 

 

(19,630

)

Net

 

 

 

580,515

 

 

 

 

580,370

 

6% Senior Notes due 2025

 

 

 

875,000

 

 

 

 

875,000

 

Plus: Unamortized debt premium

 

 

 

25,841

 

 

 

 

26,605

 

 

 

 

22,687

 

 

 

 

23,491

 

Less: Unamortized debt issuance costs

 

 

 

(20,152

)

 

 

 

(20,716

)

 

 

 

(17,803

)

 

 

 

(18,405

)

Net

 

 

 

880,689

 

 

 

 

880,889

 

 

 

 

879,884

 

 

 

 

880,086

 

7% Senior Notes

 

 

 

375,000

 

 

 

 

375,000

 

7% Senior Notes due 2023

 

 

 

375,000

 

 

 

 

375,000

 

Less: Unamortized discount and debt issuance costs

 

 

 

(6,905

)

 

 

 

(7,146

)

 

 

 

(5,814

)

 

 

 

(6,075

)

Net

 

 

 

368,095

 

 

 

 

367,854

 

 

 

 

369,186

 

 

 

 

368,925

 

Capital leases

 

 

 

769

 

 

 

 

917

 

Long-term notes payable

 

 

 

2,509

 

 

 

 

2,531

 

Revolving Credit Facility

 

 

 

40,000

 

 

 

 

245,000

 

Lumière Loan

 

 

 

246,000

 

 

 

 

246,000

 

Long-term notes and other payables

 

 

 

2,910

 

 

 

 

3,030

 

Less: Current portion

 

 

 

(553

)

 

 

 

(615

)

 

 

 

(415

)

 

 

 

(462

)

Total long-term debt

 

$

 

2,190,110

 

 

$

 

2,189,578

 

 

$

 

3,057,151

 

 

$

 

3,261,273

 

 

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 6% senior unsecured notes. The proceeds of such borrowings were used to pay the cash portion of the consideration payable in the Isle Merger, refinance all of Isle’s existing credit facilities, redeem or otherwise repurchase all of Isle’s and senior and senior subordinated notes, refinance the Company’s existing credit facility and pay transaction fees and expenses related to the foregoing.

On September 13, 2017, the Company issued an additional $500.0 million in aggregate 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 6% Senior Notes Indenture dated March 29, 2017 (as defined below), as supplemented by the supplemental indenture dated as of May 1, 2017 between the Company, the guarantors party thereto and U.S. Bank National Association, pursuant to which the Company previously issued $375.0 million aggregate 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 6% Senior Notes 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 andand/or premium associated with our indebtedness totaled $1.3$1.9 million and $0.9$1.3 million for the three months ended March 31, 20182019 and 2017,2018, respectively. Amortization of debt issuance costs is computed using the effective interest method and is included in interest expense.

Scheduled maturities of long‑term debt are $375.0$0.4 million for the remainder of 2019, $246.2 million in 2020, $0.2 million in 2021, $0.2 million in 2022, $415.1 million in 2023, $956.8 million in 2024, and $875.0 million in 2025.

The 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 the subsidiary guarantors. As of March 31, 2018, there were no significant restrictions on the ability of our subsidiaries to distribute cash to us or our guarantor subsidiaries.

Other Long-Term Liabilities

In conjunction with the Isle Acquisition, the Company acquired the existing lease and management agreements at its Nemacolin location. Under the terms of the agreements, Nemacolin Woodland Resort (“Resort”) provided land, land improvements and a building for the casino property. In accordance with ASC 840, the Company was deemed, for accounting purposes only, to be the owner of these assets provided by the Resort during the construction and casino operating periods due to the Company’s continuing involvement. Therefore, the transaction was accounted for using the direct financing method. As of March 31, 2018 and December 31, 2017, the Company recorded property and equipment, net of accumulated depreciation, of $4.2 million in both periods and a liability of $2.4 million and $4.5 million, respectively, in other long-term liabilities related to the agreement. The decrease in the liability was primarily due to the Company finalizing its purchase price accounting related to the Isle Acquisition as of March 31, 2018.

In conjunction with the Isle Acquisition, the Company acquired the existing lease and management agreements at its Bettendorf location. Under the terms of the agreements with the City of Bettendorf, Iowa, the Company leases, manages, and provides financial and operating support for the convention center (Quad-Cities Waterfront Convention Center). In accordance with ASC 840, the Company was deemed, for accounting purposes only, to be the owner of the convention center due to the Company’s continuing involvement. Therefore, the transaction was accounted for using the direct financing method. As of March 31, 2018 and December 31, 2017, the Company recorded property and equipment, net of accumulated depreciation, of $11.8 million and $11.9 million, respectively, and a liability of $5.5 million and $12.5 million, respectively, in other long-term liabilities related to the agreement. The decrease in the liability was primarily due to the Company finalizing its purchase price accounting related to the Isle Acquisition as of March 31, 2018.  

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, dated as of July 23, 2015 (the “Indenture”), between the Company and U.S. Bank, National Association, as Trustee. The 7% Senior Notes will mature on August 1, 2023, with interest payable semi-annually in arrears on February 1 and August 1 of each year.

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:billion thereafter.

 

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 7% Senior Notes 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 dates.

The 7% Senior Notes are subject to redemption imposed by gaming laws and regulations of applicable gaming regulatory authorities.

The 7% Senior Notes Indenture contains certain covenants limiting, among other things, 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;

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 7% Senior Notes Indenture. The 7% Senior Notes Indenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on such 7% Senior Notes to be declared due and payable. As of March 31, 2018, the Company was in compliance with all of the covenants under the 7% Senior Notes 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 “6% Senior Notes Indenture”), between Eagle II and U.S. Bank, National Association, as Trustee. The 6% Senior Notes will mature on April 1, 2025, with interest payable semi-annually in arrears on April 1 and October 1, commencing October 1, 2017. The proceeds of the offering, and additional funds in the amount of $1.9 million in respect of interest expected to be accrued on the 6% Senior Notes, were placed in escrow pending satisfaction of certain conditions, including consummation of 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 6% Senior Notes Indenture and certain of the Company’s subsidiaries (including Isle and certain of its subsidiaries) executed guarantees of the Company’s obligations under the 6% Senior Notes.

On September 13, 2017, the Company issued an additional $500.0 million principal amount of its 6% Senior Notes at an issue price equal to 105.5% of the principal amount of the 6% Senior Notes. The additional notes were issued pursuant to the 6% Senior Notes Indenture that governs the 6% Senior Notes. The Company used the proceeds of the offering to repay $78.0 million of outstanding borrowings under the 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 April 1, 2020, 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 6% Senior Notes 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 6% Senior Notes 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 6% Senior Notes Indenture. The 6% Senior Notes Indenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on such 6% Senior Notes to be declared due and payable. As of March 31, 2018, the Company was in compliance with all of the covenants under the 6% Senior Notes Indenture relating to the 6% Senior Notes.

Refinancing of the Term Loan and Revolving Credit Facility

Credit Facility

On July 23, 2015, theThe Company entered intois party to a $425.0 million seven year term loan (the “Term Loan”) and a $150.0 million five year revolving credit facility (the “Prior Revolving Credit Facility” and, together with the Term Loan, the “Prior Credit Facility”).

The Term Loan bore interest at a rate per annum of, at the Company’s option, either LIBOR plus 3.25%, with a LIBOR floor of 1.0%, or a base rate plus 2.25%. Borrowings under the Prior Revolving Credit Facility bore interest at a rate per annum of, at the Company’s option, either LIBOR plus a spread ranging from 2.5% to 3.25% or 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 Prior 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,with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto dated as of April 17, 2017 (the “New Credit(as amended the “Credit Facility”), consisting of a $1.45 billion term loan facility (the “New Term“Term Loan Facility” or “New Term“Term Loan”) and a $300.0$500.0 million revolving credit facility (the “New Revolving“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’sCompany’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 March 31, 2018, the Company had $956.8 million outstanding on the New Term Loan. There were no borrowings outstanding under the New Revolving Credit Facility as of March 31, 2018.will mature on October 1, 2023. The Company had $291.5 million of available borrowing capacity, after consideration of $8.5 million in outstanding letters of credit, under its New Revolving Credit Facility as of March 31, 2018. We have obtained commitments to increase our revolving credit facility from $300 million to $500 million effective at the time of the consummation of the Tropicana Acquisition. At March 31, 2018, the weighted average interest rate on the New Term Loan was 3.9% based upon the weighted average interest rate of borrowings outstanding during the three months ended March 31, 2018.

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.

We have obtained commitments to increase our revolving credit facility from $300 million to $500 million effective at the time of the consummation of the Tropicana Acquisition. The Companys 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 toof $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 13, 2017 in conjunction with the issuance of the additional 6% Senior Notes.Notes due 2025. 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.

As of March 31, 2019, the Company had $956.8 million outstanding on the Term Loan and $40.0 million outstanding under the Revolving Credit Facility. The Company had $447.7 million of available borrowing capacity, after consideration of $12.3 million in outstanding letters of credit under its Revolving Credit Facility as of March 31, 2019. The Company applied approximately $150.0 million of proceeds from the sale of Presque Isle Downs to temporarily repay amounts outstanding under the Revolving Credit Facility.  Pursuant to the terms of the indentures governing the Company’s senior notes, the Company will be required to make an offer to purchase a portion of its outstanding senior notes with the excess proceeds from such sale unless it applies the net proceeds of such sale to either permanently repay outstanding indebtedness or make specified acquisitions or capital expenditures within 365 days of the sale of Presque Isle Downs.


The 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%, whichthe 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 New Revolving Credit Facility in the amount of 0.50% per annum. At March 31, 2019, the weighted average interest rates on the Term Loan and Revolving Credit Facility were 4.88% and 4.50%, respectively.

Senior Notes

6% Senior Notes due 2026

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

The New Credit Facility is secured by substantially all6% Senior Notes due 2026 were general unsecured obligations of Escrow Issuer’s upon issuance and, upon the Company’s personal property assets and substantially all personal property assetsassumption of each subsidiary that guaranties the New Credit Facility (other than certain subsidiary guarantors designated as immaterial) (the “New Credit Facility Guarantors”), whether owned on the closing date of the New Credit Facility or thereafter acquired, and mortgages on certain real property and improvements owned or leased by us or the New Credit Facility Guarantors. The New Credit Facility is also secured by a pledge of all of the equity ownedsuch obligations by the Company and the New Credit Facilitysubsidiary guarantors (the “Guarantors”) upon consummation of the Tropicana Acquisition, became general unsecured obligations of the Company and the Guarantors, (subjectranking senior in right of payment to certain gaming law restrictions). The credit agreement governing the New Credit Facility contains a numberall of customary covenants that, among other things, restrict, subject to certain exceptions, the Company’s abilityexisting and future debt that is expressly subordinated in right of payment to the 6% Senior Notes due 2026 and the abilityguarantees, ranking equally in right of payment with all of the New Credit Facility Guarantorsapplicable obligor’s existing and future senior liabilities, including the obligations under the Company’s existing 7% Senior Notes due 2023 and 6% Senior Notes due 2025, and are effectively subordinated to incurall of the applicable obligor’s existing and future secured debt, including indebtedness under the Company’s existing senior secured credit facility and the Lumière Note (as defined in the 2026 Indenture), in each case, to the extent of the value of the collateral securing such debt. In addition, the 6% Senior Notes due 2026 and the related guarantees are structurally subordinated to all existing and future indebtedness and other liabilities of the Company’s subsidiaries and other entities in which the Company has an equity interest that do not guarantee the 6% Senior Notes due 2026 (other than indebtedness and liabilities owed to the Company or the Guarantors).

6% Senior Notes due 2025

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

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

7% Senior Notes due 2023

On July 23, 2015, the Company issued at par $375.0 million in mergers, consolidations or asset dispositions, make distributions, make investments, loans or advances, engageaggregate principal amount of 7.0% senior notes due 2023 (“7% Senior Notes due 2023”) pursuant to an indenture, dated as of July 23, 2015 (the “2023 Indenture”), between the Company and U.S. Bank, National Association, as Trustee. The 7% Senior Notes due 2023 will mature on August 1, 2023, with interest payable semi-annually in certain transactions with affiliates or subsidiaries or modify their linesarrears on February 1 and August 1 of business.each year.


The New Credit Facility also includes certain financial covenants, includingLumière Loan

We borrowed $246 million from GLPI to fund the requirements that we maintain throughout the termentire purchase price of the New Credit Facility and measured as of the end of each fiscal quarter, and solely with respectreal estate underlying Lumière. The Lumière Loan bears interest at a rate equal to loans under the New Revolving Credit Facility, a maximum consolidated total leverage ratio of not more than 6.50 to 1.00 for the period beginning on the closing date and ending with the fiscal quarter ending December 31, 2018, 6.00 to 1.00 for the period beginning with the fiscal quarter beginning January(i) 9.09% until October 1, 2019 and ending with the fiscal quarter ending December 31, 2019, and 5.50 to 1.00 for the period beginning with the fiscal quarter beginning January(ii) 9.27% until October 1, 2020, and thereafter.matures on October 1, 2020. The Company will also be required to maintain an interest coverage ratio in an amount not less than 2.00 to 1.00 measuredLumière Loan is secured by a first priority mortgage on the last day of each fiscal quarter beginning on the closing date, and endingLumière real property until October 1, 2019. In connection with the fiscal quarter ending December 31, 2018, 2.50issuance of the Lumière Loan, we agreed to 1.00 foruse our commercially reasonable efforts to transfer one or more of the period beginningGrand Victoria Casino, Isle Casino Bettendorf, Isle Casino Hotel Waterloo, Isle of Capri Lula, Lady Luck Casino Vicksburg and Mountaineer Casino, Racetrack and Resort or such other property or properties mutually acceptable to us and GLPI, provided that the aggregate value of such property, individually or collectively, is at least $246 million (the “Replacement Property”), to GLPI with a simultaneous leaseback to us of such Replacement Property. In connection with such Replacement Property sale, (i) we and GLPI will enter into an amendment to the Master Lease to revise the economic terms to include the Replacement Property, (ii) GLPI, or one of its affiliates, will assume the Lumière Loan and Tropicana St. Louis RE’s obligations under the Lumière Loan in consideration of the acquisition of the Replacement Property and our obligations under the Lumière Loan will be deemed to have been satisfied, (iii) the Lumière Real Property will be released from the lien placed on it in connection with the fiscal quarter beginning January 1, 2019 and endingLumière Loan (if such lien has not yet been released in accordance with the fiscal quarter ending December 31, 2019,terms of the Lumière Loan) and 2.75(iv) in the event the value of the Replacement Property is greater than the our outstanding obligations under the Lumière Loan, GLPI will pay us the difference between the value of the Replacement Property and the amount of outstanding obligations under the Lumière Loan. If such Replacement Property transaction is not consummated prior to 1.00 for the period beginning withmaturity date of the fiscal quarter beginning January 1, 2020 and thereafter.

The New Credit Facility containsLumière Loan, other than as a number of customary events of default, including, among others, for the non-payment of principal, interest or other amounts, the inaccuracyresult of certain representations and warranties, the failurefailures to perform or observe certain covenants, a cross default to our other indebtedness, includingby GLPI, then the Notes, certain events of bankruptcy or insolvency, certain ERISA events, the invalidity of certain loan documents, certain changes of controlamounts outstanding will be paid in full and the loss of certain classes of licenses to conduct gaming. If any event of default occurs, the lendersrent under the New Credit Facility would be entitledMaster Lease will automatically increase, subject to take various actions, including accelerating amounts outstanding thereunder and taking all actions permitted to be taken by a secured creditor. certain escalations.

Debt Covenant Compliance

As of March 31, 2018, the Company was2019, we were in compliance with all of the covenants under the New7% Senior Notes due 2023, 6% Senior Notes due 2025, 6% Senior Notes due 2026, the Credit Facility.Facility, the Lumière Loan and the Master Lease.

Note 9.12. Fair Value Measurements

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

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

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

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

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

 

 

March 31, 2018

 

Assets:

 

Level 1

 

 

Level 2

 

 

Total

 

Restricted cash and investments

 

$

 

9,449

 

 

$

 

4,072

 

 

$

 

13,521

 

Marketable securities

 

 

 

8,284

 

 

 

 

8,952

 

 

 

 

17,236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

Assets:

 

Level 1

 

 

Level 2

 

 

Total

 

Restricted cash and investments

 

$

 

9,055

 

 

$

 

4,098

 

 

$

 

13,153

 

Marketable securities

 

 

 

7,906

 

 

 

 

9,725

 

 

 

 

17,631

 

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


Restricted Cash and Investments: Restricted cash includes cash reserved for unredeemed winning tickets from the Company’s racing operations, funds related to horsemen’s fines and certain simulcasting funds that are restricted to payments for improving horsemen’s facilities and racing purses, cash deposits that serve as collateral for letters of credit, surety bonds and short-term certificates of deposit that serve as collateral for certain bonding requirements. The estimated fair values of our restricted cash and investments are based upon quoted prices available in active markets (Level 1), or quoted prices for similar assets in active and inactive markets (Level 2), or quoted prices available in active markets adjusted for time restrictions related to the sale of the investment (Level 3) and represent the amounts we would expect to receive if we sold our restricted cash and investments.Restricted investments, included in Other Assets, net, relate to trading securities pledged as collateral by our captive insurance company.

Accounts Receivable and Credit Risk: 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 exists.

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


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

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

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

 

 

March 31, 2019

 

Assets:

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Restricted cash and investments

 

$

 

19,775

 

 

$

 

3,050

 

 

$

 

41,775

 

 

$

 

64,600

 

Marketable securities

 

 

 

9,816

 

 

 

 

7,083

 

 

 

 

 

 

 

 

16,899

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other liabilities related to restricted investments

 

 

 

 

 

 

 

 

 

 

 

(8,672

)

 

 

 

(8,672

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

Assets:

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Restricted cash and investments

 

$

 

19,481

 

 

$

 

4,467

 

 

$

 

16,008

 

 

$

 

39,956

 

Marketable securities

 

 

 

9,515

 

 

 

 

7,442

 

 

 

 

 

 

 

 

16,957

 

The change in restricted cash and investments valued using Level 3 inputs for the three months ended March 31, 2019 is as follows:

 

 

Level 3 Investments

 

 

Level 3 Other Liabilities

 

Fair value of investment and liabilities at December 31, 2018

 

$

 

16,008

 

 

$

 

 

Value of additional investment received

 

 

 

27,329

 

 

 

 

(8,774

)

Change in other liabilities related to restricted investments

 

 

 

 

 

 

 

102

 

Unrealized loss in restricted investments

 

 

 

(1,562

)

 

 

 

 

Fair value at March 31, 2019

 

$

 

41,775

 

 

$

 

(8,672

)

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

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

 

 

 

March 31, 2018

 

 

December 31, 2017

 

 

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

 

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7% Senior Notes

 

$

 

368,095

 

 

$

 

394,687

 

 

$

 

367,854

 

 

$

 

400,800

 

6% Senior Notes

 

 

 

880,689

 

 

 

 

881,563

 

 

 

 

880,889

 

 

 

 

914,375

 

New Term Loan

 

 

 

938,601

 

 

 

 

959,142

 

 

 

 

938,002

 

 

 

 

956,750

 

Other long-term debt

 

 

 

2,509

 

 

 

 

2,509

 

 

 

 

2,531

 

 

 

 

2,531

 

Capital leases

 

 

 

769

 

 

 

 

769

 

 

 

 

917

 

 

 

 

917

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

 

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7% Senior Notes due 2023

 

$

 

369,186

 

 

$

 

392,812

 

 

$

 

368,925

 

 

$

 

385,312

 

6% Senior Notes due 2025

 

 

 

879,884

 

 

 

 

892,500

 

 

 

 

880,086

 

 

 

 

840,000

 

6% Senior Notes due 2026

 

 

 

580,515

 

 

 

 

594,000

 

 

 

 

580,370

 

 

 

 

567,000

 

Term Loan

 

 

 

939,071

 

 

 

 

947,183

 

 

 

 

938,324

 

 

 

 

916,088

 

Revolving Credit Facility

 

 

 

40,000

 

 

 

 

40,000

 

 

 

 

245,000

 

 

 

 

245,000

 

Lumière Loan

 

 

 

246,000

 

 

 

 

246,000

 

 

 

 

246,000

 

 

 

 

246,000

 

Other long-term debt

 

 

 

2,910

 

 

 

 

2,910

 

 

 

 

3,030

 

 

 

 

3,030

 

 

 


Note 10.13. Earnings per Share

The following table illustrates the reconciliation of the numerators and denominators of the basic and diluted net income per share computations for the three months ended March 31, 20182019 and 20172018 (dollars in thousands, except per share amounts):

 

 

Three Months Ended

 

 

Three Months Ended

 

 

March 31,

 

 

March 31,

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

(unaudited)

 

 

 

 

Net income available to common stockholders

 

$

 

20,855

 

 

$

 

945

 

 

$

 

38,229

 

 

$

 

20,855

 

 

 

 

 

 

 

 

 

 

 

Shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

 

77,353,730

 

 

 

 

47,120,751

 

 

 

 

77,567,147

 

 

 

 

77,353,730

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

 

152,906

 

 

 

 

50,799

 

 

 

 

104,382

 

 

 

 

152,906

 

RSUs

 

 

 

573,413

 

 

 

 

909,731

 

 

 

 

917,581

 

 

 

 

573,413

 

Weighted average shares outstanding – diluted

 

 

 

78,080,049

 

 

 

 

48,081,281

 

 

 

 

78,589,110

 

 

 

 

78,080,049

 

 

 

 

 

 

 

 

 

 

 

Net income per common share attributable to common

stockholders – basic:

 

$

 

0.27

 

 

$

 

0.02

 

 

$

 

0.49

 

 

$

 

0.27

 

Net income per common share attributable to common

stockholders – diluted:

 

$

 

0.27

 

 

$

 

0.02

 

 

$

 

0.49

 

 

$

 

0.27

 

 

Note 11.14. Commitments and Contingencies

Litigation.  The Company is a party to various lawsuits,legal and administrative proceedings, which have arisen in the normal course of its business. Estimated losses are accrued for these lawsuits and claimsproceedings when the loss is probable and can be estimated. The current liability for the estimated losses associated with those lawsuitsthese proceedings is not material to the Company’s consolidated financial condition and those estimated losses are not expected to have a material impact on theits results of operations. In addition, the Company maintains what it believes is adequate insurance coverage to further mitigate the risks of such proceedings. However, such proceedings can be costly, time consuming and unpredictable and, therefore, no assurance can be given that the final outcome of such proceedings may not materially impact the Company’s consolidated financial condition or results of operations. Further, no assurance can be given that the Company’s existing insurance coverage will be sufficient to cover losses, if any, arising from such proceedings.

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

Note 12.15. Related Affiliates

The Company has a lease agreement with C.S. &Y. Associates (“CS&Y”) which is an entity partially owned byREI

As of March 31, 2019, Recreational Enterprises, Inc. (“REI”), which is owned by membersapproximately 14.4% of outstanding common stock of the Company. The directors of REI are Company’s Executive Chairman of the Board, Gary L. Carano, its Chief Executive Officer and Board member, Thomas R. Reeg, and its former Senior Vice President of Regional Operations, Gene Carano. In addition, Gary L. Carano also serves as the Vice President of REI and Gene Carano also serves as the Secretary and Treasurer of REI. Members of the Carano family,Family, including Gary L. Carano and various trusts of which membersGene Carano, own the equity interests in REI. As such, the Carano Family has the ability to significantly influence the affairs of the Company. During the three months end March 31, 2019 and 2018, there were no related party transactions between the Company and the Carano family are beneficiaries. In addition, each of Gary L. CaranoFamily other than compensation, including salary and Thomas R. Reeg serve as members ofequity incentives, and the board of directors of REI. CSY Lease listed below.


C. S. & Y. Associates

The Company owns the entire parcel on which Eldorado Reno is located, except for approximately 30,000 square feet which is leased from CS&Y. For the period ended March 31, 2018, the


amount paid to CS&Y was $150,000. No amounts were due to or due from CS&Y as of March 31, 2018 and December 31, 2017.

C. S. & Y. Associates which is an entity partially owned by REI (the “CSY Lease”). 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. PursuantCSY Lease expires on June 30, 2057. Rent pursuant to the terms ofCSY Lease is $0.6 million annually and paid quarterly during the partnership agreement, the Company contributed $1.0 million of cash and 2.4 acres of a leasehold immediately adjacent to The Brew Brothers microbrewery and restaurant at Scioto Downs. The partnership constructed the hotel at a cost of $16.0 million and other investor members operate the hotel.year. As of March 31, 2019 and December 31, 2018 the Company’s receivablethere were no amounts due to or from the partnership totaled $62,000 and the Company’s payable to the partnership totaled $10,000. These amounts are reflected on the accompanying balance sheet under “due from affiliates” and “due to affiliates.”C.S. & Y. Associates.

Note 13.16. Segment Information

The following table sets forth, for the period indicated, certain operating data for our reportable segments. The executive decision maker of our Company reviews operating results, assesses performance and makes decisions on a “significant market” basis. Management views each of our casinos as an operating segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, and their management and reporting structure. Prior to the Isle Acquisition,Elgin and Tropicana acquisitions, the Company’s principal operating activities occurred in three geographic regions: Nevada, Louisiana and parts of the eastern United States. Following the Isle Acquisition, the Company’s principal operating activities expanded and now occur in four geographic regions and reportable segments. As referenced in Note 1, following the Elgin and Tropicana acquisitions a fifth segment, Central, was added in the third quarter of 2018. The reportable segments are based on the similar characteristics of the operating segments within the regions in which they operate. The previously reportedThese segments Nevada, Louisiana, and Eastern, are now included in the West, South, and East segments, respectively, which are summarized as follows, along with the Midwest segment.follows:  

 

Segment

 

Property

Date Acquired

 

State

West

 

Eldorado Reno

 

(a)

Nevada

 

 

Silver Legacy

(a)

 

Nevada

 

 

Circus Reno

 

(a)

Nevada

MontBleu

October 1, 2018

Nevada

Laughlin

October 1, 2018

Nevada

 

 

Isle Black Hawk

May 1, 2017

 

Colorado

 

 

Lady Luck Black Hawk

 

May 1, 2017

Colorado

 

 

 

 

 

Midwest

 

Waterloo

 

May 1, 2017

Iowa

 

 

Bettendorf

 

May 1, 2017

Iowa

 

 

Boonville

May 1, 2017

 

Missouri

 

 

Cape Girardeau

 

May 1, 2017

Missouri

 

 

Caruthersville

May 1, 2017

 

Missouri

 

 

Kansas City

 

May 1, 2017

Missouri

 

 

 

 

 

South

 

Pompano

 

May 1, 2017

Florida

 

 

Eldorado Shreveport

(a)

 

Louisiana

 

 

Lake Charles

 

May 1, 2017

Louisiana

Baton Rouge

October 1, 2018

Louisiana

 

 

Lula

May 1, 2017

 

Mississippi

 

 

Vicksburg

 

May 1, 2017

Mississippi

Greenville

October 1, 2018

Mississippi

 

 

 

 

 

East

 

Presque Isle Downs

 

(a) (b)

Pennsylvania

 

 

Nemacolin

5/1/2017 (b)

 

Pennsylvania

 

 

Scioto Downs

 

(a)

Ohio

 

 

Mountaineer

 

(a)

West Virginia

 

Trop AC

October 1, 2018

New Jersey

Central

Elgin

August 7, 2018

Illinois

Lumière

October 1, 2018

Missouri

Evansville

October 1, 2018

Indiana

(a)

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

(b)

Presque Isle Downs was sold on January 11, 2019 and Nemacolin was sold on March 8, 2019.


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 disclosedfive reportable segments.

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

Ended March 31,

 

 

Ended March 31,

 

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

 

(in thousands, unaudited)

 

 

(in thousands)

Revenues and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating revenues

 

$

 

99,579

 

 

$

 

63,488

 

 

$

 

118,095

 

 

$

 

99,579

 

 

Operating income—West

 

 

10,139

 

 

 

1,355

 

Depreciation and amortization

 

 

 

13,143

 

 

 

 

8,189

 

 

Operating income

 

 

10,801

 

 

 

 

10,139

 

 

Midwest:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating revenues

 

$

 

100,795

 

 

$

 

 

 

 

96,787

 

 

 

 

100,795

 

 

Operating income—Midwest

 

 

 

26,676

 

 

 

 

 

Depreciation and amortization

 

 

 

8,421

 

 

 

 

7,645

 

 

Operating income

 

 

27,833

 

 

 

 

26,676

 

 

South:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating revenues

 

$

 

122,800

 

 

$

 

32,560

 

 

 

132,714

 

 

 

 

122,800

 

 

Operating income—South

 

 

 

13,359

 

 

 

 

5,918

 

Depreciation and amortization

 

 

 

11,015

 

 

 

 

8,531

 

 

Operating income

 

 

27,515

 

 

 

 

13,359

 

 

East:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating revenues

 

$

 

116,891

 

 

$

 

106,287

 

 

 

166,233

 

 

 

 

116,891

 

 

Operating income—East

 

 

 

19,131

 

 

 

 

15,034

 

Depreciation and amortization

 

 

 

12,149

 

 

 

 

6,049

 

 

Operating income

 

 

27,161

 

 

 

 

19,131

 

 

Central:

 

 

 

 

 

 

 

 

 

 

Net operating revenues

 

 

120,472

 

 

 

 

 

 

Depreciation and amortization

 

 

 

11,210

 

 

 

 

 

 

Operating income

 

 

27,070

 

 

 

 

 

 

Corporate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating revenues

 

$

 

127

 

 

$

 

58

 

 

 

1,522

 

 

 

 

127

 

 

Operating loss—Corporate

 

 

 

(15,111

)

 

 

 

(8,279

)

Depreciation and amortization

 

 

 

1,819

 

 

 

 

1,120

 

 

Operating income (loss)

 

 

3,224

 

 

 

 

(15,111

)

 

Total Reportable Segments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating revenues

 

$

 

440,192

 

 

$

 

202,393

 

 

$

 

635,823

 

 

$

 

440,192

 

 

Operating income – Total Reportable Segments

 

 

54,194

 

 

 

14,028

 

Reconciliations to Consolidated Net Income:

 

 

 

 

 

 

 

 

 

Operating Income — Total Reportable Segments

 

$

 

54,194

 

 

$

 

14,028

 

Depreciation and amortization

 

$

 

57,757

 

 

$

 

31,534

 

 

Operating income

 

$

 

123,604

 

 

$

 

54,194

 

 

Reconciliations to consolidated net income:

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

 

123,604

 

 

$

 

54,194

 

 

Unallocated income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(31,251

)

 

 

 

(12,670

)

 

 

(73,510

)

 

 

 

(31,251

)

 

Unrealized loss on restricted investment

 

 

(1,460

)

 

 

 

 

 

Provision for income taxes

 

 

 

(2,088

)

 

 

 

(413

)

 

 

 

(10,405

)

 

 

 

(2,088

)

 

Net income

 

$

 

20,855

 

 

$

 

945

 

 

$

 

38,229

 

 

$

 

20,855

 

 

 

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

(in thousands, unaudited)

 

 

(in thousands)

 

Capital Expenditures

 

 

 

 

 

 

 

 

 

 

Capital Expenditures, Net

 

 

 

 

 

 

 

 

 

 

West

 

$

 

10,181

 

 

$

 

4,154

 

 

$

 

16,054

 

 

$

 

10,181

 

Midwest

 

 

 

2,741

 

 

 

 

 

 

 

 

4,123

 

 

 

 

2,741

 

South

 

 

 

2,883

 

 

 

 

547

 

 

 

 

3,764

 

 

 

 

2,883

 

East

 

 

 

2,874

 

 

 

 

1,430

 

 

 

 

10,574

 

 

 

 

2,874

 

Central

 

 

 

2,668

 

 

 

 

 

Corporate

 

 

 

2,592

 

 

 

 

75

 

 

 

 

1,177

 

 

 

 

2,592

 

Total

 

$

 

21,271

 

 

$

 

6,206

 

 

$

 

38,360

 

 

$

 

21,271

 


 

 

West

 

 

Midwest

 

 

South

 

 

East

 

 

Corporate,

Other &

Eliminations

 

 

Total

 

 

West

 

 

Midwest

 

 

South

 

 

East

 

 

Central

 

 

Corporate,

Other &

Eliminations

 

 

Total

 

Balance sheet as of March 31, 2018 (unaudited)

(in thousands)

 

Balance sheet as of March 31, 2019

(in thousands)

 

Total assets

 

$

 

1,285,898

 

 

$

 

1,199,909

 

 

$

 

804,736

 

 

$

 

1,189,210

 

 

$

 

(927,533

)

 

$

 

3,552,220

 

 

$

 

1,829,237

 

 

$

 

1,285,862

 

 

$

 

1,145,605

 

 

$

 

1,968,176

 

 

$

 

1,508,821

 

 

$

 

(1,623,183

)

 

$

 

6,114,518

 

Goodwill

 

 

152,762

 

 

 

322,745

 

 

 

180,044

 

 

 

 

63,704

 

 

 

 

 

 

 

 

719,255

 

 

 

220,861

 

 

 

322,745

 

 

 

213,150

 

 

 

 

177,486

 

 

 

 

74,074

 

 

 

 

 

 

 

 

1,008,316

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance sheet as of December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance sheet as of December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

 

1,278,062

 

 

$

 

1,188,758

 

 

$

 

804,318

 

 

$

 

1,185,806

 

 

$

 

(910,472

)

 

$

 

3,546,472

 

 

$

 

1,710,375

 

 

$

 

1,245,521

 

 

$

 

1,068,258

 

 

$

 

2,166,730

 

 

$

 

1,457,961

 

 

$

 

(1,737,383

)

 

$

 

5,911,462

 

Goodwill

 

 

152,775

 

 

 

327,088

 

 

 

200,417

 

 

 

 

66,826

 

 

 

 

 

 

 

 

747,106

 

 

 

220,861

 

 

 

322,745

 

 

 

213,150

 

 

 

 

177,486

 

 

 

 

74,074

 

 

 

 

 

 

 

 

1,008,316

 


 

Note 14.17. Consolidating Condensed Financial Information

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

TheAs of March 31, 2019, following wholly-owned subsidiaries of the Company are guarantors, on a joint and several basis, under the 7% Senior Notes due 2023, 6% Senior Notes due 2025, 6% Senior Notes due 2026 and 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.; Old PID, Inc. (f/k/a Presque Isle Downs, Inc.); Scioto Downs Inc.; Eldorado Limited Liability Company; Circus and Eldorado Joint Venture, LLC; CC Reno LLC; CCR Newco LLC; Black Hawk Holdings, L.L.C.; IC Holdings Colorado, Inc.; CCSC/Blackhawk, Inc.; 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.L.L.C; Elgin Riverboat Resort–Riverboat Casino; Elgin Holdings I LLC; Elgin Holdings II LLC, PPI Development Holdings LLC; PPI Development LLC; Tropicana Entertainment, Inc.; New Tropicana Holdings, Inc.; New Tropicana OpCo, Inc.; TLH LLC; TropWorld Games LLC; TEI R7 Investment LLC; TEI Management Services LLC; Tropicana St. Louis LLC; TEI (St. Louis) RE, LLC; TEI (STLH), LLC; TEI (ES), LLC; Aztar Riverboat Holding Company, LLC; Aztar Indiana Gaming Company, LLC ; New Jazz Enterprises, LLC; Catfish Queen Partnership in Commendam; Centroplex Centre Convention Hotel LLC; Columbia Properties Tahoe, LLC; MB Development, LLC; Lighthouse Point, LLC and Tropicana Laughlin, LLC. Each of the subsidiaries’ guarantees is joint and several with the guarantees of the other subsidiaries.

 

The consolidating condensed balance sheet as of March 31, 20182019 is as follows:

 

Balance Sheet

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

(in thousands, unaudited)

 

 

(in thousands)

 

Current assets

 

$

 

68,033

 

 

$

 

380,583

 

 

$

 

26,693

 

 

$

 

 

 

$

 

475,309

 

 

$

 

69,364

 

 

$

 

294,777

 

 

$

 

24,184

 

 

$

 

(5,335

)

 

$

 

382,990

 

Intercompany receivables

 

 

 

211,587

 

 

 

 

 

 

 

 

29,049

 

 

 

 

(240,636

)

 

 

 

 

 

 

 

 

 

 

 

235,559

 

 

 

 

21,914

 

 

 

 

(257,473

)

 

 

 

 

Investment in and advances to

unconsolidated affiliates

 

 

 

130,338

 

 

 

 

1,902

 

 

 

 

 

 

 

 

 

 

 

 

132,240

 

Investments in subsidiaries

 

 

 

2,480,728

 

 

 

 

 

 

 

 

 

 

 

 

(2,480,728

)

 

 

 

 

 

 

 

3,716,505

 

 

 

 

 

 

 

 

 

 

 

 

(3,716,505

)

 

 

 

 

Property and equipment, net

 

 

 

12,444

 

 

 

 

1,375,675

 

 

 

 

8,167

 

 

 

 

 

 

 

 

1,396,286

 

 

 

 

17,775

 

 

 

 

2,847,556

 

 

 

 

4,789

 

 

 

 

 

 

 

 

2,870,120

 

Other assets

 

 

 

47,511

 

 

 

 

1,656,163

 

 

 

 

22,925

 

 

 

 

(45,974

)

 

 

 

1,680,625

 

 

 

 

63,993

 

 

 

 

2,673,033

 

 

 

 

24,574

 

 

 

 

(32,432

)

 

 

 

2,729,168

 

Total assets

 

$

 

2,820,303

 

 

$

 

3,412,421

 

 

$

 

86,834

 

 

$

 

(2,767,338

)

 

$

 

3,552,220

 

 

$

 

3,997,975

 

 

$

 

6,052,827

 

 

$

 

75,461

 

 

$

 

(4,011,745

)

 

$

 

6,114,518

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

 

43,159

 

 

$

 

151,378

 

 

$

 

22,753

 

 

$

 

 

 

$

 

217,290

 

 

$

 

94,871

 

 

$

 

283,102

 

 

$

 

16,706

 

 

$

 

(5,335

)

 

$

 

389,344

 

Intercompany payables

 

 

 

 

 

 

 

215,636

 

 

 

 

25,000

 

 

 

 

(240,636

)

 

 

 

 

 

 

 

232,473

 

 

 

 

 

 

 

 

25,000

 

 

 

 

(257,473

)

 

 

 

 

Long-term financing obligation to GLPI

 

 

 

 

 

 

 

962,505

 

 

 

 

 

 

 

 

 

 

 

 

962,505

 

Long-term debt, less current maturities

 

 

 

1,814,801

 

 

 

 

375,000

 

 

 

 

309

 

 

 

 

 

 

 

 

2,190,110

 

 

 

 

2,435,971

 

 

 

 

621,180

 

 

 

 

 

 

 

 

 

 

 

 

3,057,151

 

Deferred income tax liabilities

 

 

 

 

 

 

 

213,569

 

 

 

 

 

 

 

 

(45,974

)

 

 

 

167,595

 

 

 

 

 

 

 

 

236,454

 

 

 

 

 

 

 

 

(32,432

)

 

 

 

204,022

 

Other accrued liabilities

 

 

 

3,791

 

 

 

 

12,019

 

 

 

 

2,784

 

 

 

 

 

 

 

 

18,594

 

 

 

 

171,397

 

 

 

 

266,835

 

 

 

 

 

 

 

 

 

 

 

 

438,232

 

Stockholders’ equity

 

 

 

958,552

 

 

 

 

2,444,819

 

 

 

 

35,988

 

 

 

 

(2,480,728

)

 

 

 

958,631

 

 

 

 

1,063,263

 

 

 

 

3,682,751

 

 

 

 

33,755

 

 

 

 

(3,716,505

)

 

 

 

1,063,264

 

Total liabilities and stockholders’

equity

 

$

 

2,820,303

 

 

$

 

3,412,421

 

 

$

 

86,834

 

 

$

 

(2,767,338

)

 

$

 

3,552,220

 

 

$

 

3,997,975

 

 

$

 

6,052,827

 

 

$

 

75,461

 

 

$

 

(4,011,745

)

 

$

 

6,114,518

 

 



The consolidating condensed balance sheet as of December 31, 20172018 is as follows:

 

Balance Sheet

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

(in thousands)

 

 

(in thousands)

 

Current assets

 

$

 

27,572

 

 

$

 

201,321

 

 

$

 

22,139

 

 

$

 

 

 

$

 

251,032

 

 

$

 

48,268

 

 

$

 

497,309

 

 

$

 

27,619

 

 

$

 

 

 

$

 

573,196

 

Intercompany receivables

 

 

 

274,148

 

 

 

 

 

 

 

 

34,492

 

 

 

 

(308,640

)

 

 

 

 

 

 

 

 

 

 

 

11,885

 

 

 

 

23,988

 

 

 

 

(35,873

)

 

 

 

 

Investment in and advances to

unconsolidated affiliates

 

 

 

 

 

 

 

1,892

 

 

 

 

 

 

 

 

 

 

 

 

1,892

 

Investments in subsidiaries

 

 

 

2,437,287

 

 

 

 

 

 

 

 

 

 

 

 

(2,437,287

)

 

 

 

 

 

 

 

3,648,961

 

 

 

 

 

 

 

 

 

 

 

 

(3,648,961

)

 

 

 

 

Property and equipment, net

 

 

 

12,042

 

 

 

 

1,483,473

 

 

 

 

7,302

 

 

 

 

 

 

 

 

1,502,817

 

 

 

 

18,555

 

 

 

 

2,859,271

 

 

 

 

4,780

 

 

 

 

 

 

 

 

2,882,606

 

Other assets

 

 

 

37,458

 

 

 

 

1,764,291

 

 

 

 

27,283

 

 

 

 

(36,409

)

 

 

 

1,792,623

 

 

 

 

35,072

 

 

 

 

2,423,807

 

 

 

 

26,674

 

 

 

 

(31,785

)

 

 

 

2,453,768

 

Total assets

 

$

 

2,788,507

 

 

$

 

3,449,085

 

 

$

 

91,216

 

 

$

 

(2,782,336

)

 

$

 

3,546,472

 

 

$

 

3,750,856

 

 

$

 

5,794,164

 

 

$

 

83,061

 

 

$

 

(3,716,619

)

 

$

 

5,911,462

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

 

28,676

 

 

$

 

169,348

 

 

$

 

25,726

 

 

$

 

 

 

$

 

223,750

 

 

$

 

48,579

 

 

$

 

328,319

 

 

$

 

25,279

 

 

$

 

 

 

$

 

402,177

 

Intercompany payables

 

 

 

 

 

 

 

283,640

 

 

 

 

25,000

 

 

 

 

(308,640

)

 

 

 

 

 

 

 

10,873

 

 

 

 

 

 

 

 

25,000

 

 

 

 

(35,873

)

 

 

 

 

Long-term financing obligation to GLPI

 

 

 

 

 

 

 

959,835

 

 

 

 

 

 

 

 

 

 

 

 

959,835

 

Long-term debt, less current maturities

 

 

 

1,814,185

 

 

 

 

375,000

 

 

 

 

393

 

 

 

 

 

 

 

 

2,189,578

 

 

 

 

2,640,046

 

 

 

 

621,193

 

 

 

 

34

 

 

 

 

 

 

 

 

3,261,273

 

Deferred income tax liabilities

 

 

 

 

 

 

 

199,376

 

 

 

 

 

 

 

 

(36,409

)

 

 

 

162,967

 

 

 

 

 

 

 

 

231,795

 

 

 

 

 

 

 

 

(31,785

)

 

 

 

200,010

 

Other accrued liabilities

 

 

 

4,127

 

 

 

 

19,624

 

 

 

 

4,828

 

 

 

 

 

 

 

 

28,579

 

 

 

 

22,206

 

 

 

 

36,808

 

 

 

 

 

 

 

 

 

 

 

 

59,014

 

Stockholders’ equity

 

 

 

941,519

 

 

 

 

2,402,097

 

 

 

 

35,269

 

 

 

 

(2,437,287

)

 

 

 

941,598

 

 

 

 

1,029,152

 

 

 

 

3,616,214

 

 

 

 

32,748

 

 

 

 

(3,648,961

)

 

 

 

1,029,153

 

Total liabilities and stockholders’

equity

 

$

 

2,788,507

 

 

$

 

3,449,085

 

 

$

 

91,216

 

 

$

 

(2,782,336

)

 

$

 

3,546,472

 

 

$

 

3,750,856

 

 

$

 

5,794,164

 

 

$

 

83,061

 

 

$

 

(3,716,619

)

 

$

 

5,911,462

 

 



The consolidating condensed statement of operations for the three months ended March 31, 20182019 is as follows:

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

(in thousands, unaudited)

 

 

(in thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

commissions

 

$

 

 

 

$

 

335,793

 

 

$

 

7,735

 

 

$

 

 

 

$

 

343,528

 

 

$

 

 

 

 

 

466,441

 

 

$

 

4,410

 

 

$

 

 

 

$

 

470,851

 

Non-gaming

 

 

 

 

 

 

 

94,023

 

 

 

 

2,641

 

 

 

 

 

 

 

 

96,664

 

 

 

 

1,397

 

 

 

 

161,502

 

 

 

 

2,073

 

 

 

 

 

 

 

 

164,972

 

Net revenues

 

 

 

 

 

 

 

429,816

 

 

 

 

10,376

 

 

 

 

 

 

 

 

440,192

 

 

 

 

1,397

 

 

 

 

627,943

 

 

 

 

6,483

 

 

 

 

 

 

 

 

635,823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

commissions

 

 

 

 

 

164,303

 

 

 

5,248

 

 

 

 

 

 

169,551

 

 

 

 

 

 

207,142

 

 

 

3,164

 

 

 

 

 

 

210,306

 

Non-gaming

 

 

 

 

 

 

 

63,975

 

 

 

 

712

 

 

 

 

 

 

 

 

64,687

 

 

 

 

 

 

 

 

94,884

 

 

 

 

400

 

 

 

 

 

 

 

 

95,284

 

Marketing and promotions

 

 

 

 

 

 

 

20,835

 

 

 

 

466

 

 

 

 

 

 

 

 

21,301

 

 

 

 

 

 

 

 

32,053

 

 

 

 

248

 

 

 

 

 

 

 

 

32,301

 

General and administrative

 

 

 

 

 

 

 

72,427

 

 

 

 

1,775

 

 

 

 

 

 

 

 

74,202

 

 

 

 

 

 

 

 

118,552

 

 

 

 

1,336

 

 

 

 

 

 

 

 

119,888

 

Corporate

 

 

 

10,294

 

 

 

 

322

 

 

 

 

953

 

 

 

 

 

 

 

 

11,569

 

 

 

 

16,141

 

 

 

 

529

 

 

 

 

84

 

 

 

 

 

 

 

 

16,754

 

Impairment charges

 

 

 

 

 

 

 

9,815

 

 

 

 

 

 

 

 

 

 

 

 

9,815

 

 

 

 

 

 

 

 

958

 

 

 

 

 

 

 

 

 

 

 

 

958

 

Management fee

 

 

 

(5,137

)

 

 

 

5,137

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,735

)

 

 

 

4,735

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

772

 

 

 

 

30,601

 

 

 

 

161

 

 

 

 

 

 

 

 

31,534

 

 

 

 

1,150

 

 

 

 

56,607

 

 

 

 

 

 

 

 

 

 

 

 

57,757

 

Total operating expenses

 

 

 

5,929

 

 

 

 

367,415

 

 

 

 

9,315

 

 

 

 

 

 

 

 

382,659

 

 

 

 

12,556

 

 

 

 

515,460

 

 

 

 

5,232

 

 

 

 

 

 

 

 

533,248

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on sale of asset or disposal of

property and equipment

 

 

 

 

 

 

(706

)

 

 

 

 

 

 

 

 

 

 

 

(706

)

Gain on sale or disposal of

property and equipment

 

 

409

 

 

 

 

21,396

 

 

 

 

513

 

 

 

 

 

 

 

 

22,318

 

Transaction expenses

 

 

(2,118

)

 

 

 

(430

)

 

 

 

 

 

 

 

 

 

 

 

(2,548

)

 

 

(1,227

)

 

 

 

(475

)

 

 

 

(192

)

 

 

 

 

 

 

 

(1,894

)

Equity in loss of unconsolidated

affiliate

 

 

 

 

 

 

 

(85

)

 

 

 

 

 

 

 

 

 

 

 

(85

)

Income (loss) from unconsolidated

affiliates

 

 

 

655

 

 

 

 

(50

)

 

 

 

 

 

 

 

 

 

 

 

605

 

Operating (loss) income

 

 

 

(8,047

)

 

 

 

61,180

 

 

 

 

1,061

 

 

 

 

 

 

 

 

54,194

 

 

 

 

(11,322

)

 

 

 

133,354

 

 

 

 

1,572

 

 

 

 

 

 

 

 

123,604

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(24,432

)

 

 

 

(6,286

)

 

 

 

(533

)

 

 

 

 

 

 

 

(31,251

)

 

 

(37,432

)

 

 

 

(35,834

)

 

 

 

(244

)

 

 

 

 

 

 

 

(73,510

)

Unrealized loss on restricted investments

 

 

(1,460

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,460

)

Subsidiary income (loss)

 

 

 

43,305

 

 

 

 

 

 

 

 

 

 

 

 

(43,305

)

 

 

 

 

 

 

 

72,255

 

 

 

 

 

 

 

 

 

 

 

 

(72,255

)

 

 

 

 

Income (loss) before income

taxes

 

 

 

10,826

 

 

 

 

54,894

 

 

 

 

528

 

 

 

 

(43,305

)

 

 

 

22,943

 

 

 

 

22,041

 

 

 

 

97,520

 

 

 

 

1,328

 

 

 

 

(72,255

)

 

 

 

48,634

 

Income tax benefit (provision)

 

 

 

10,029

 

 

 

 

(12,303

)

 

 

 

186

 

 

 

 

 

 

 

 

(2,088

)

 

 

 

16,188

 

 

 

 

(26,265

)

 

 

 

(328

)

 

 

 

 

 

 

 

(10,405

)

Net income (loss)

 

$

 

20,855

 

 

$

 

42,591

 

 

$

 

714

 

 

$

 

(43,305

)

 

$

 

20,855

 

 

$

 

38,229

 

 

$

 

71,255

 

 

$

 

1,000

 

 

$

 

(72,255

)

 

$

 

38,229

 


The consolidating condensed statement of operations for the three months ended March 31, 20172018 is as follows:

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

$

 

 

 

$

 

335,793

 

 

$

 

7,735

 

 

$

 

 

 

$

 

343,528

 

Non-gaming

 

 

 

 

 

 

 

94,023

 

 

 

 

2,641

 

 

 

 

 

 

 

 

96,664

 

Net revenues

 

 

 

 

 

 

 

429,816

 

 

 

 

10,376

 

 

 

 

 

 

 

 

440,192

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

 

 

 

 

 

 

164,303

 

 

 

 

5,248

 

 

 

 

 

 

 

 

169,551

 

Non-gaming

 

 

 

 

 

 

 

63,975

 

 

 

 

712

 

 

 

 

 

 

 

 

64,687

 

Marketing and promotions

 

 

 

 

 

 

 

20,835

 

 

 

 

466

 

 

 

 

 

 

 

 

21,301

 

General and administrative

 

 

 

 

 

 

 

72,427

 

 

 

 

1,775

 

 

 

 

 

 

 

 

74,202

 

Corporate

 

 

 

10,294

 

 

 

 

322

 

 

 

 

953

 

 

 

 

 

 

 

 

11,569

 

Impairment charges

 

 

 

 

 

 

 

9,815

 

 

 

 

 

 

 

 

 

 

 

 

9,815

 

Management fee

 

 

 

(5,137

)

 

 

 

5,137

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

772

 

 

 

 

30,601

 

 

 

 

161

 

 

 

 

 

 

 

 

31,534

 

Total operating expenses

 

 

 

5,929

 

 

 

 

367,415

 

 

 

 

9,315

 

 

 

 

 

 

 

 

382,659

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on sale or disposal of

   property and equipment

 

 

 

 

 

 

 

(706

)

 

 

 

 

 

 

 

 

 

 

 

(706

)

Transaction expenses

 

 

 

(2,118

)

 

 

 

(430

)

 

 

 

 

 

 

 

 

 

 

 

(2,548

)

Loss from unconsolidated

   affiliates

 

 

 

 

 

 

 

(85

)

 

 

 

 

 

 

 

 

 

 

 

(85

)

Operating (loss) income

 

 

 

(8,047

)

 

 

 

61,180

 

 

 

 

1,061

 

 

 

 

 

 

 

 

54,194

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

(24,432

)

 

 

 

(6,286

)

 

 

 

(533

)

 

 

 

 

 

 

 

(31,251

)

Subsidiary income (loss)

 

 

 

43,305

 

 

 

 

 

 

 

 

 

 

 

 

(43,305

)

 

 

 

 

Income (loss) before income

   taxes

 

 

 

10,826

 

 

 

 

54,894

 

 

 

 

528

 

 

 

 

(43,305

)

 

 

 

22,943

 

Income tax benefit (provision)

 

 

 

10,029

 

 

 

 

(12,303

)

 

 

 

186

 

 

 

 

 

 

 

 

(2,088

)

Net income (loss)

 

$

 

20,855

 

 

$

 

42,591

 

 

$

 

714

 

 

$

 

(43,305

)

 

$

 

20,855

 


The consolidating condensed statement of cash flows for the three months ended March 31, 2019 is as follows:

 

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands, unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

$

 

 

 

$

 

142,185

 

 

$

 

5

 

 

$

 

 

 

$

 

142,190

 

Non-gaming

 

 

 

 

 

 

 

60,145

 

 

 

 

58

 

 

 

 

 

 

 

 

60,203

 

Net revenues

 

 

 

 

 

 

 

202,330

 

 

 

 

63

 

 

 

 

 

 

 

 

202,393

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

 

 

 

 

 

 

81,188

 

 

 

 

 

 

 

 

 

 

 

 

81,188

 

Non-gaming

 

 

 

 

 

 

 

41,266

 

 

 

 

 

 

 

 

 

 

 

 

41,266

 

Marketing and promotions

 

 

 

 

 

 

 

10,125

 

 

 

 

4

 

 

 

 

 

 

 

 

10,129

 

General and administrative

 

 

 

 

 

 

 

31,800

 

 

 

 

 

 

 

 

 

 

 

 

31,800

 

Corporate

 

 

 

6,574

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,574

 

Management fee

 

 

 

(6,574

)

 

 

 

6,574

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

149

 

 

 

 

15,455

 

 

 

 

 

 

 

 

 

 

 

 

15,604

 

Total operating expenses

 

 

 

149

 

 

 

 

186,408

 

 

 

 

4

 

 

 

 

 

 

 

 

186,561

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on sale of asset or disposal of

   property and equipment

 

 

 

 

 

 

 

32

 

 

 

 

 

 

 

 

 

 

 

 

32

 

Transaction expenses

 

 

 

(1,614

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,614

)

Equity in loss of unconsolidated

   affiliate

 

 

 

 

 

 

 

(222

)

 

 

 

 

 

 

 

 

 

 

 

(222

)

Operating (loss) income

 

 

 

(1,763

)

 

 

 

15,732

 

 

 

 

59

 

 

 

 

 

 

 

 

14,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

(6,089

)

 

 

 

(6,581

)

 

 

 

 

 

 

 

 

 

 

 

(12,670

)

Subsidiary income (loss)

 

 

 

9,255

 

 

 

 

 

 

 

 

 

 

 

 

(9,255

)

 

 

 

 

Income (loss) before income

   taxes

 

 

 

1,403

 

 

 

 

9,151

 

 

 

 

59

 

 

 

 

(9,255

)

 

 

 

1,358

 

Income tax (provision) benefit

 

 

 

(458

)

 

 

 

45

 

 

 

 

 

 

 

 

 

 

 

 

(413

)

Net income (loss)

 

$

 

945

 

 

$

 

9,196

 

 

$

 

59

 

 

$

 

(9,255

)

 

$

 

945

 

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands)

 

Net cash provided by (used in)

   operating activities

 

$

 

13,524

 

 

$

 

53,239

 

 

$

 

(1,323

)

 

$

 

 

 

$

 

65,440

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment, net

 

 

 

(1,154

)

 

 

 

(37,198

)

 

 

 

(8

)

 

 

 

 

 

 

 

(38,360

)

Proceeds from sale of property and

   equipment, net of cash sold

 

 

 

550

 

 

 

 

168,997

 

 

 

 

(1,602

)

 

 

 

 

 

 

 

167,945

 

Purchase of restricted investments

 

 

 

 

 

 

 

 

 

 

 

(80

)

 

 

 

 

 

 

 

(80

)

Net cash (used in) provided by

   investing activities

 

 

 

(604

)

 

 

 

131,799

 

 

 

 

(1,690

)

 

 

 

 

 

 

 

129,505

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments under Revolving Credit

  Facility

 

 

 

(205,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(205,000

)

Net proceeds from (payments to) related

   parties

 

 

 

221,599

 

 

 

 

(223,672

)

 

 

 

2,073

 

 

 

 

 

 

 

 

 

Payments on other long-term payables

 

 

 

(23

)

 

 

 

(12

)

 

 

 

(83

)

 

 

 

 

 

 

 

(118

)

Debt issuance costs

 

 

 

(386

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(386

)

Taxes paid related to net share settlement

   of equity awards

 

 

 

(4,322

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,322

)

Net cash provided by (used in)

   financing activities

 

 

 

11,868

 

 

 

 

(223,684

)

 

 

 

1,990

 

 

 

 

 

 

 

 

(209,826

)

Increase (decrease) in cash, cash equivalents

   and restricted cash

 

 

 

24,788

 

 

 

 

(38,646

)

 

 

 

(1,023

)

 

 

 

 

 

 

 

(14,881

)

Cash, cash equivalents and restricted

   cash, beginning of period

 

 

 

12,844

 

 

 

 

222,672

 

 

 

 

11,175

 

 

 

 

 

 

 

 

246,691

 

Cash, cash equivalents and restricted

   cash, end of period

 

$

 

37,632

 

 

$

 

184,026

 

 

$

 

10,152

 

 

$

 

 

 

$

 

231,810

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

   CONSOLIDATED BALANCE SHEETS:

 

Cash and cash equivalents

 

$

 

37,632

 

 

 

 

170,099

 

 

 

 

9,152

 

 

$

 

 

 

$

 

216,883

 

Restricted cash

 

 

 

 

 

 

 

7,892

 

 

 

 

 

 

 

 

 

 

 

 

7,892

 

Restricted and escrow cash included in other

   noncurrent assets

 

 

 

 

 

 

 

6,035

 

 

 

 

1,000

 

 

 

 

 

 

 

 

7,035

 

Total cash, cash equivalents and restricted

   cash

 

$

 

37,632

 

 

$

 

184,026

 

 

$

 

10,152

 

 

$

 

 

 

$

 

231,810

 

 


The consolidating condensed statement of cash flows for the three months ended March 31, 2018 is as follows:

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

(in thousands, unaudited)

 

 

(in thousands)

 

Net cash (used in) provided by

operating activities

 

$

 

(7,128

)

 

$

 

87,253

 

 

$

 

(2,118

)

 

$

 

 

 

$

 

78,007

 

 

$

 

(7,128

)

 

$

 

87,253

 

 

$

 

(2,118

)

 

$

 

 

 

$

 

78,007

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment, net

 

 

 

(1,233

)

 

 

 

(19,011

)

 

 

 

(1,027

)

 

 

 

 

 

 

 

(21,271

)

 

 

 

(1,233

)

 

 

 

(19,011

)

 

 

 

(1,027

)

 

 

 

 

 

 

 

(21,271

)

Proceeds from sale of property and equipment

 

 

 

 

 

 

 

150

 

 

 

 

 

 

 

 

 

 

 

 

150

 

 

 

 

 

 

 

 

150

 

 

 

 

 

 

 

 

 

 

 

 

150

 

Net cash provided by (used in) investing

activities

 

 

 

(1,233

)

 

 

 

(18,861

)

 

 

 

(1,027

)

 

 

 

 

 

 

 

(21,121

)

Net cash used in investing activities

 

 

 

(1,233

)

 

 

 

(18,861

)

 

 

 

(1,027

)

 

 

 

 

 

 

 

(21,121

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net proceeds from (payments to) related

parties

 

 

 

62,560

 

 

 

 

(66,660

)

 

 

 

4,100

 

 

 

 

 

 

 

 

 

 

 

 

62,560

 

 

 

 

(66,660

)

 

 

 

4,100

 

 

 

 

 

 

 

 

 

Payment of other long-term obligation

 

 

 

(22

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22

)

Payments on capital leases

 

 

 

 

 

 

 

(78

)

 

 

 

(70

)

 

 

 

 

 

 

 

(148

)

Payments on other long-term payables

 

 

 

(22

)

 

 

 

(78

)

 

 

 

(70

)

 

 

 

 

 

 

 

(170

)

Debt issuance costs

 

 

 

(304

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(304

)

 

 

 

(304

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(304

)

Taxes paid related to net share settlement

of equity awards

 

 

 

(7,502

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,502

)

 

 

 

(7,502

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,502

)

Net cash provided by (used in)

financing activities

 

 

 

54,732

 

 

 

 

(66,738

)

 

 

 

4,030

 

 

 

 

 

 

 

 

(7,976

)

 

 

 

54,732

 

 

 

 

(66,738

)

 

 

 

4,030

 

 

 

 

 

 

 

 

(7,976

)

INCREASE IN CASH, CASH

EQUIVALENTS AND

RESTRICTED CASH

 

 

 

46,371

 

 

 

 

1,654

 

 

 

 

885

 

 

 

 

 

 

 

 

48,910

 

 

 

 

46,371

 

 

 

 

1,654

 

 

 

 

885

 

 

 

 

 

 

 

 

48,910

 

CASH, CASH EQUIVALENTS AND

RESTRICTED CASH, BEGINNING OF

YEAR

 

 

 

13,836

 

 

 

 

118,483

 

 

 

 

15,430

 

 

 

 

 

 

 

 

147,749

 

 

 

 

13,836

 

 

 

 

118,483

 

 

 

 

15,430

 

 

 

 

 

 

 

 

147,749

 

CASH, CASH EQUIVALENTS AND

RESTRICTED CASH, END OF PERIOD

 

$

 

60,207

 

 

$

 

120,137

 

 

$

 

16,315

 

 

$

 

 

 

$

 

196,659

 

 

$

 

60,207

 

 

$

 

120,137

 

 

$

 

16,315

 

 

$

 

 

 

$

 

196,659

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

CONSOLIDATED BALANCE SHEETS:

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

CONSOLIDATED BALANCE SHEETS:

 

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

CONSOLIDATED BALANCE SHEETS:

 

Cash and cash equivalents

 

$

 

59,490

 

 

$

 

116,394

 

 

$

 

7,254

 

 

$

 

 

 

$

 

183,138

 

 

$

 

59,490

 

 

$

 

116,394

 

 

$

 

7,254

 

 

$

 

 

 

$

 

183,138

 

Restricted cash

 

 

 

717

 

 

 

2,743

 

 

 

199

 

 

 

 

 

 

3,659

 

 

 

 

717

 

 

 

2,743

 

 

 

199

 

 

 

 

 

 

3,659

 

Restricted cash included in other noncurrent

assets

 

 

 

 

 

 

 

1,000

 

 

 

 

8,862

 

 

 

 

 

 

 

 

9,862

 

 

 

 

 

 

 

 

1,000

 

 

 

 

8,862

 

 

 

 

 

 

 

 

9,862

 

TOTAL CASH, CASH EQUIVALENTS

AND RESTRICTED CASH

 

$

 

60,207

 

 

$

 

120,137

 

 

$

 

16,315

 

 

$

 

 

 

$

 

196,659

 

 

$

 

60,207

 

 

$

 

120,137

 

 

$

 

16,315

 

 

$

 

 

 

$

 

196,659

 

 


The consolidating condensed statement of cash flows for the three months ended March 31, 2017 is as follows:

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands, unaudited)

 

Net cash (used in) provided by

   operating activities

 

$

 

(2,768

)

 

$

 

7,862

 

 

$

 

89

 

 

$

 

 

 

$

 

5,183

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment, net

 

 

 

(151

)

 

 

 

(6,055

)

 

 

 

 

 

 

 

 

 

 

 

(6,206

)

Proceeds from sale of property and

   equipment

 

 

 

 

 

 

 

32

 

 

 

 

 

 

 

 

 

 

 

 

32

 

(Decrease) increase in other assets, net

 

 

 

(565

)

 

 

 

417

 

 

 

 

 

 

 

 

 

 

 

 

(148

)

Cash escrow related to acquisition

 

 

 

(376,750

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(376,750

)

Net cash used in investing activities

 

 

 

(377,466

)

 

 

 

(5,606

)

 

 

 

 

 

 

 

 

 

 

 

(383,072

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of 6% Senior Notes

 

 

 

375,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

375,000

 

Payments under Term Loan

 

 

 

(1,063

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,063

)

Borrowings under Prior Revolving Credit

   Facility

 

 

 

23,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,000

 

Payments under Prior Revolving Credit

   Facility

 

 

 

(29,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,000

)

Principal payments on capital leases

 

 

 

 

 

 

 

(94

)

 

 

 

 

 

 

 

 

 

 

 

(94

)

Debt issuance costs

 

 

 

(7,016

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,016

)

Net proceeds from (payments to)

   related parties

 

 

 

18,746

 

 

 

 

(18,634

)

 

 

 

(112

)

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement

   of equity awards

 

 

 

(179

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(179

)

Proceeds from exercise of stock options

 

 

 

434

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

434

 

Net cash provided by (used in)

   financing activities

 

 

 

379,922

 

 

 

 

(18,728

)

 

 

 

(112

)

 

 

 

 

 

 

 

361,082

 

INCREASE IN CASH, CASH

   EQUIVALENTS AND

   RESTRICTED CASH

 

 

 

(312

)

 

 

 

(16,472

)

 

 

 

(23

)

 

 

 

 

 

 

 

(16,807

)

CASH, CASH EQUIVALENTS AND

   RESTRICTED CASH, BEGINNING OF

   YEAR

 

 

 

1,409

 

 

 

 

61,702

 

 

 

 

332

 

 

 

 

 

 

 

 

63,443

 

CASH, CASH EQUIVALENTS AND

   RESTRICTED CASH, END OF PERIOD

 

$

 

1,097

 

 

$

 

45,230

 

 

$

 

309

 

 

$

 

 

 

$

 

46,636

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

   CONSOLIDATED BALANCE SHEETS:

 

Cash and cash equivalents

 

$

 

419

 

 

$

 

43,846

 

 

$

 

309

 

 

$

 

 

 

$

 

44,574

 

Restricted cash

 

 

 

678

 

 

 

 

1,384

 

 

 

 

 

 

 

 

 

 

 

 

2,062

 

TOTAL CASH, CASH EQUIVALENTS

   AND RESTRICTED CASH

 

$

 

1,097

 

 

$

 

45,230

 

 

$

 

309

 

 

$

 

 

 

$

 

46,636

 

Note 15. Pending Acquisitions

On April 16, 2018, the Company announced that it entered into a definitive agreement to acquire the Grand Victoria Casino in Elgin, Illinois for $327.5 million in cash, subject to a customary working capital adjustment (the “Grand Victoria Acquisition”). The Company intends to fund the consideration payable in the Grand Victoria Acquisition using cash from currently pending asset sales, cash from ongoing operations and borrowings under its revolving credit facility.


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

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

The Acquisitions are expected to close in the fourth quarter of 2018, subject to satisfaction of customary closing conditions including receipt of required regulatory approvals and termination of the waiting period under the Hart-Scott-Rodino Act.

Transaction expenses attributed to the Grand Victoria Acquisition and the Tropicana Acquisition totaled $0.6 million and $1.0 million, respectively, for the three months ended March 31, 2018. As of March 31, 2018, $0.4 million and $0.8 million of accrued costs and expenses related to the Grand Victoria Acquisition and Tropicana Acquisition, respectively, are included in accrued other liabilities.


ITEM 2.

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

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

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

Overview

We are a geographically diversified gaming and hospitality company owning and operating 20with 26 gaming facilities in 10 states.12 states as of March 31, 2019. Our properties, which are located in Ohio, Louisiana, Nevada, Pennsylvania,New Jersey, West Virginia, Colorado, Florida, Iowa, Mississippi, Illinois, Indiana and Missouri, feature approximately 21,00028,000 slot machines and video lottery terminals (“VLTs”), approximately 600750 table games and over 7,000approximately 12,600 hotel rooms. Our primary source of revenue is generated by gaming operations, and we utilize our hotels, restaurants, bars, entertainment, racing, retail shops and other services to attract customers to our properties.

We were founded in 1973 by the Carano Familyfamily with the opening of the Eldorado Hotel Casino in Reno, Nevada. In 1993, we partnered with MGM Resorts International on theto build Silver Legacy Resort Casino, the first mega-themed resort in Reno. In 2005, we acquired our first property outside of Reno when we acquiredpurchased a casino in Shreveport, Louisiana, now known as Eldorado Shreveport. In September 2014, we merged with MTR Gaming Group, Inc. and acquired its three gaming and racing facilities in Ohio, Pennsylvania and West Virginia. The following year, in November 2015, we acquired Circus Circus Reno and the 50% membership interest in the Silver Legacy that was owned by MGM Resorts International. On May 1, 2017, we completed our most recent – and largest – acquisition to date when we acquiredof Isle of Capri Casinos, Inc. (“Isle” or “Isle of Capri”), adding another 13 gaming properties to our portfolio.portfolio. On August 7, 2018, we acquired the Elgin Riverboat Resort – Riverboat Casino d/b/a Grand Victoria Casino (“Elgin”) (the “Elgin Acquisition”). On October 1, 2018, we completed our acquisition of Tropicana Entertainment, Inc. (“Tropicana”), adding seven properties to our portfolio (the “Tropicana Acquisition”). On January 11, 2019 and March 8, 2019, respectively, we closed on our sales of Presque Isle Downs & Casino and Lady Luck Casino Nemacolin, which are both located in Pennsylvania.

We ownAs of March 31, 2019, we owned and operateoperated 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 1,1251,117 slot machines and 4636 table games;

Silver Legacy Resort Casino (Silver Legacy)A 1,711-room1,685-room themed hotel and casino connected via an enclosed skywalk to Eldorado Reno and Circus Reno that includes 1,1871,119 slot machines, 6348 table games and a 13 table13-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 712722 slot machines and 24 table games;machines; 

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 1,3971,388 slot machines, 52 table games and an eight tableeight-table poker room;

Mountaineer Casino, Racetrack & Resort (Mountaineer)A 357-room hotel, casino, entertainment and live thoroughbred horse racing facility located on the Ohio River at the northern tip of West Virginias northwestern panhandle that includes 1,5081,486 slot machines, 36 table games including a 10 table poker room;

Presque Isle Downs & Casino (Presque Isle Downs)A casino and live thoroughbred horse racing facility with 1,593 slot machines, 33 table games and a seven table10-table poker room located in Erie, Pennsylvania;room;

Eldorado Gaming Scioto Downs (Scioto Downs)A modern racino offering 2,245 video lottery terminals,2,238 VLTs, harness racing and a 118-room third party hotel connected to Scioto Downs located 15 minutes from downtown Columbus, Ohio;Ohio.

Isle Casino HotelBlack Hawk (“Isle Black Hawk”)A land-based casino on an approximately 10-acre site in Black Hawk, Colorado that includes 1,026966 slot machines, 2728 table games, a nine table10-table poker room and a 238-room hotel;

Lady Luck CasinoBlack Hawk (“Lady Luck Black Hawk”)A land-based casino across the intersection from Isle Casino Hotel in Black Hawk Colorado, that includes 452442 slot machines, 10seven table games five poker tables and a 164-room hotel with a parking structure connecting Isle Casino Hotel-BlackBlack Hawk and Lady Luck Casino-BlackBlack 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 1,4551,596 slot machines and a 45 table39-table poker room. In April 2018, we announced the formation of a joint venture with the Cordish Companies to master plan and develop a mixed-use entertainment and hospitality destination expected to be located on unused land adjacent to the casino and racetrack;room;

Isle Casino Bettendorf (“Bettendorf”)A land-based single-level casino located off Interstate 74 in Bettendorf, Iowa that includes 978969 slot machines and 2015 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 940939 slot machines, 2523 table games, and a 194-room hotel;

Isle of Capri Casino Hotel Lake Charles (“Lake Charles”)A gaming vessel on an approximately 19 acre19-acre site in Lake Charles, Louisiana, with 1,1731,164 slot machines, 4734 table games, including 1311 poker tables, and two hotels offering 493 rooms;

Isle of Capri Casino Lula (“Lula”)Two dockside casinos in Lula, Mississippi with 875862 slot machines and 2025 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 616607 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 893881 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 872863 slot machines, and 2420 table games includingand four poker tables;

Lady Luck Casino Caruthersville (“Caruthersville”)—A riverboat casino located along the Mississippi River in Caruthersville, Missouri that includes 516507 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 966938 slot machines and 1813 table games;  and

Lady LuckTropicana Casino Nemacolinand Resort, Atlantic City (“Nemacolin”Trop AC”)A casino propertyand resort situated on approximately 15 acres with approximately 660 feet of ocean frontage in Atlantic City, New Jersey that includes 2,464 slot machines, 107 table games, 18 poker tables and 2,366 hotel rooms;

Tropicana Evansville (“Evansville”)—A casino hotel and entertainment complex in Evansville, Indiana featuring 1,128 slot machines, 33 table games, eight poker tables and two on-site hotels with a total of 338 rooms;

Lumière Place Casino (“Lumière”)—A casino located on approximately 20 acres, located in historic downtown St. Louis, Missouri near business and entertainment districts and overlooks the 2,000-acre Nemacolin Woodlands ResortMississippi River with 1,401 slot machines, 48 table games, 10 poker tables and 494 hotel rooms;

Tropicana Laughlin Hotel and Casino (“Laughlin”)—A casino in Western PennsylvaniaLaughlin, Nevada that includes 600895 slot machines, 20 table games and 1,487 hotel rooms;

MontBleu Casino Resort & Spa (“MontBleu”)—A casino situated on approximately 21 acres in South Lake Tahoe, Nevada surrounded by the Sierra Nevada Mountains featuring 474 slot machines, 17 table games and 438 hotel rooms;

Trop Casino Greenville (“Greenville”)—A landside gaming facility located in Greenville, Mississippi with 590 slot machines, 10 table games and 40 hotel rooms;

Belle of Baton Rouge Casino & Hotel (“Baton Rouge”)—A dockside riverboat situated on approximately 23 acres on the Mississippi River in the downtown historic district of Baton Rouge featuring 773 slot machines, 14 table games and 288 hotel rooms; and

Grand Victoria Casino (“Elgin”)—A casino located in Elgin, Illinois featuring 1,088 slot machines and 2830 table games.

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


Pending Acquisitions and Development Opportunities

Grand Victoria Casino

On April 16,August 7, 2018, we announced that we entered into a definitive agreement to acquirecompleted the acquisition of the Grand Victoria Casino in Elgin, IllinoisIllinois. We purchased Elgin for $327.5$328.8 million, in cash. We intend to fund the proposed transactionincluding a working capital adjustment totaling $1.3 million. The Elgin Acquisition was financed using cash from pending asset sales, cash from ongoing operationson hand and borrowings under ourthe Company’s revolving credit facility. The transaction is expected to close in the fourth quarter of 2018, subject to regulatory approvals and other customary closing conditions and is subject to a customary working capital adjustment.

Also on April 16,Tropicana Entertainment Inc.

On October 1, 2018, we announced that we entered into a definitive agreement to acquireacquired Tropicana Entertainment Inc. in a cash transaction that is valued at $1.85$1.9 billion. The definitive agreement provides thatAt the closing of the transaction Tropicana became a wholly-owned subsidiary of ours. Immediately prior to our acquisition, Tropicana sold Tropicana Aruba Resort and GLP Capital, L.P., a wholly owned subsidiary of Gaming and Leisure Properties, will pay $1.21 billion, excluding taxes and expenses, forInc. (“GLPI”), acquired substantially all of Tropicana’s real estate, and enter into a master lease with us for the acquired real estate and that we will fund the remaining $640 million of cash consideration payable in the acquisition. Pursuant to the transaction, Gaming and Leisure Properties is expected to acquireother than the real estate associatedunderlying MontBleu and Lumière, for approximately $964 million. We acquired the real estate underlying Lumière for $246 million with the proceeds of a $246 million loan from GLPI. We funded the remaining consideration payable with our cash on hand and cash on hand at Tropicana, property portfolio, except the MontBleu Casino Resort & Spa in South Lake Tahoeborrowings under our revolving credit facility and proceeds from our offering of $600 million of 6.0% senior notes due 2026. In addition, our borrowing capacity on our revolving credit facility increased from $300 million to $500 million effective October 1, 2018, and the Tropicana Aruba Resort and Casino. Followingmaturity of the revolving credit facility was extended to October 1, 2023.

Substantially concurrently with the acquisition of the real estate portfolio by Gaming and Leisure Properties,GLPI, we will enterentered into a triple net master lease for the Tropicana properties acquired propertiesby GLPI with an initial term of 15 years, with renewals of up to 20 years at our option.option (“Master Lease”). Under the Master Lease, we are required to pay the following, among other things: lease payments to the underlying ground lessor for properties that are subject to ground leases, facility maintenance costs, all insurance premiums for insurance with respect to the leased properties and the business conducted on the leased properties, taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor and all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties). The initial annual rent under the terms of the lease was approximately $87.6 million and is subject to annual escalation. We do not have the ability to terminate the obligations under the Master Lease prior to its expiration without GLPI’s consent.

In connection with the purchase of the real estate related to Lumière, GLPI, Tropicana St. Louis RE LLC, a wholly-owned subsidiary of ours (“Tropicana St. Louis RE”), and GLPI entered into a loan agreement, dated as of October 1, 2018 (the “Lumière Loan”), relating to a loan of $246 million by GLPI to Tropicana St. Louis RE to fund the entire purchase price of the real estate underlying Lumière. The Lumière Loan is guaranteed by us, bears interest at a rate equal to (i) 9.09% until October 1, 2019 and (ii) 9.27% thereafter and matures on October 1, 2020. The Lumière Loan is secured by a first priority mortgage on the Lumière real estate until October 1, 2019. In connection with the issuance of the Lumière Loan, we agreed to use our commercially reasonable efforts to transfer one or more of Elgin, Bettendorf, Waterloo, Lula, Vicksburg and Mountaineer or such other property or properties mutually acceptable to Tropicana St. Louis RE and GLPI, provided that the aggregate value of such property, individually or collectively, is at least $246 million (the “Replacement Property”), to GLPI with a simultaneous leaseback to us of such Replacement Property.  In connection with such Replacement Property sale, (i) we and GLPI will enter into an amendment to the Master Lease to revise the economic terms to include the Replacement Property, (ii) GLPI, or one of its affiliates, will assume the Lumière Loan and Tropicana St. Louis RE’s obligations under the Lumière Loan in consideration of the acquisition of the Replacement Property and our Tropicana St. Louis RE’s obligations under the Lumière Loan will be deemed to have been satisfied, (iii) the Lumière Real Property will be released from the lien placed on it in connection with the Lumière Loan (if such lien has not yet been released in accordance with the terms of the Lumière Loan) and (iv) in the event the value of the Replacement Property is greater than the outstanding obligations of Tropicana St. Louis RE under the Lumière Loan, GLPI will pay Tropicana St. Louis RE the difference between the value of the Replacement Property and the amount of outstanding obligations under the Lumière Loan. If such Replacement Property transaction is not consummated prior to the maturity date of the Lumière Loan, other than as a result of certain failures to perform by GLPI, then the amounts outstanding will be paid in full and the rent under the Master Lease will automatically increase, subject to certain escalations.

William Hill

In September 2018, we entered into a 25-year agreement, which became effective January 2019, with William Hill PLC and William Hill US, its U.S. subsidiary (together, “William Hill”) pursuant to which we (i) granted to William Hill the right to conduct betting activities in retail channels and under our first skin and third skin for online channels with respect to our current and future properties located in the United States and the territories and possessions of the United States, including Puerto Rico and the U.S. Virgin Islands and (ii) agreed that William Hill will have the right to conduct real money online gaming activities utilizing our second skin available with respect to properties in such territory.  Pursuant to the terms of the agreement, we received a 20% ownership interest in William Hill US valued at approximately $128.9 million as well as 13.4 million ordinary shares of William Hill PLC valued at approximately $27.3 million upon closing of the transaction in January 2019. Additionally, we receive a revenue share from the operation of retail betting and online betting and gaming activities. The initial equity and the profit and losses attributable to William Hill US are in included in income (loss) from unconsolidated affiliates on the Consolidated Statements of Income.


The Stars Group

In November 2018, we entered into a 20-year agreement with The Stars Group Inc. (“TSG”) pursuant to which we agreed to provide TSG with options to obtain access to our second skin for online sports wagering and third skin for real money online gaming and poker, in each case with respect to our properties in the United States. Under the terms of the agreement, we will receive a revenue share from the operation of the applicable verticals by TSG under our licenses. Pursuant to the terms of the TSG agreement, we received 1.1 million TSG common shares valued at approximately $18.6 million and we may receive an additional $5.0 million in TSG common shares upon the exercise of the first option by TSG. We may also receive additional TSG common shares in the future based on TSG net gaming revenue generated in our markets.

Pompano Joint Venture

In April 2018, we entered into a joint venture with Cordish Companies (“Cordish”) to master plan and develop a mixed-use entertainment and hospitality destination expected to be approximately $110 million. Tropicana intendslocated on unused land adjacent to disposethe casino and racetrack at our Pompano property. As the managing member, Cordish will operate the business and manage the development, construction, financing, marketing, leasing, maintenance and day-to-day operation of Tropicana Aruba Resortthe various phases of the project. Additionally, we will be responsible for the development of the master plan for the project with our input and Casino priorwill submit it for our review and approval. We and Cordish have made initial cash contributions of $250,000 each and could be required to closing.

make additional contributions to a maximum of $2.0 million ($1.0 million per member) at the request of the managing member. We intendhave agreed to fundcontribute land to the consideration of approximately $640 million payable by usjoint venture for the project. While we hold a 50% variable interest in the Tropicana transactionjoint venture, we are not the primary beneficiary; as such the investment in the joint venture is accounted for using the equity method. We participate evenly with Cordish in the profits and repay debt outstanding under Tropicana’s credit facility with cash generated from our current operations, proceeds from pending asset sales, Tropicana’s cash on hand, cash flow generated from Tropicana operations through closing and $600 million of committed debt financing. In addition, the Company has obtained commitments to increase its revolving credit facility from $300 million to $500 million effective at the timelosses of the consummationjoint venture, which is included in loss from unconsolidated affiliates on the Consolidated Statements of the Tropicana transaction and expects to extend the maturity of the revolving credit facility to five years following the consummation of the Tropicana transaction.Income.

Pending Dispositions

On February 28, 2018, we entered into definitive agreements to sell substantially all of the assets and liabilities of Presque Isle Downs and Vicksburg to Churchill Downs Incorporated.Incorporated (“CDI”). Under the terms of the agreements, Churchill Downs Incorporated. willCDI agreed to purchase Presque Isle Downs for cash consideration of approximately $178.9 million and Vicksburg for cash consideration of approximately $50.6 million,, in each case subject to a customary working capital adjustment. Additionally,In conjunction with the classification of Vicksburg’s operations as assets held for sale at March 31, 2018 as a result of the announced sale to CDI, an impairment charge totaling $9.8 million was recorded relateddue to Vicksburg.the carrying value exceeding the estimated net sales proceeds.

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

On July 6, 2018, in consideration of the Hart-Scott-Rodino Act. Issuance oftime and expense needed to reply to the Second Request, extends the waiting period under the Hart-Scott-Rodino Act until 30 days after the Company and CDI have substantially complied with the Second Request, unless the waiting period is extended voluntarily byentered into a termination agreement and release pursuant to which the parties or terminated earlier byagreed to terminate the FTC.asset purchase agreement with respect to Vicksburg and to enter into an asset purchase agreement pursuant to which CDI would acquire and assume the rights and obligations to operate Nemacolin (the “Vicksburg Termination Agreement”). The CompanyVicksburg Termination Agreement also provided that CDI would pay us a $5.0 million termination fee upon execution of a definitive agreement with respect to the Nemacolin transaction.  On August 10, 2018, we entered into a definitive agreement to sell substantially all of the assets and liabilities of Nemacolin to CDI.  Under the terms of the agreement, CDI continueagreed to cooperate fully withpurchase Nemacolin for cash consideration of approximately $0.1 million, subject to a customary working capital adjustment.

As a result of the FTC in its review. The Dispositions are expectedagreement to closesell Nemacolin, an impairment charge of $3.8 million was recorded in the third or fourth quarter of 2018 subjectdue to satisfaction of closing conditions (including terminationthe carrying value of the waiting period undernet property and equipment being sold exceeding the Hart-Scott-Rodino Act and, inestimated net sales proceeds.

We closed on the casesale of Presque Isle Downs the prior closing ofon January 11, 2019 and the sale of Vicksburg or the entry into an agreement to acquire another asset of the Company.Nemacolin on March 8, 2019.


Reportable Segments

The following table sets forth, for the period indicated, certain operating data for our reportable segments. The executive decision maker of our Companycompany reviews operating results, assesses performance and makes decisions on a “significant market” basis. ManagementOur management views each of our casinosproperties 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 theour acquisition of Isle, Acquisition, the Company’sour principal operating activities occurred in three geographic regions: Nevada, Louisiana and parts of the eastern United States. Following the Isle Acquisition, the Company’s principal operating activities expanded and now occuroccurred in four geographic regions and reportable segments based on the similar characteristics of the operating segments within the regions in which they operate. The previously reported segments, Nevada, Louisiana, and Eastern, are now included in thesegments: West, Midwest, South and EastEast. Following the Tropicana Acquisition and Elgin Acquisition, an additional segment, Central, was added increasing our reportable segments respectively, whichto five. The five segments are summarized as follows, along with the Midwest segment.follows:


 

Segment

 

Property

Date Acquired

 

State

West

 

Eldorado Reno

 

(a)

Nevada

 

 

Silver Legacy

(a)

 

Nevada

 

 

Circus Reno

 

(a)

Nevada

MontBleu

October 1, 2018

Nevada

Laughlin

October 1, 2018

Nevada

 

 

Isle Black Hawk

May 1, 2017

 

Colorado

 

 

Lady Luck Black Hawk

 

May 1, 2017

Colorado

 

 

 

 

 

Midwest

 

Waterloo

 

May 1, 2017

Iowa

 

 

Bettendorf

 

May 1, 2017

Iowa

 

 

Boonville

May 1, 2017

 

Missouri

 

 

Cape Girardeau

 

May 1, 2017

Missouri

 

 

Caruthersville

May 1, 2017

 

Missouri

 

 

Kansas City

 

May 1, 2017

Missouri

 

 

 

 

 

South

 

Pompano

 

May 1, 2017

Florida

 

 

Eldorado Shreveport

(a)

 

Louisiana

 

 

Lake Charles

 

May 1, 2017

Louisiana

Baton Rouge

October 1, 2018

Louisiana

 

 

Lula

May 1, 2017

 

Mississippi

 

 

Vicksburg

 

May 1, 2017

Mississippi

Greenville

October 1, 2018

Mississippi

 

 

 

 

 

East

 

Presque Isle Downs

 

(a) (b)

Pennsylvania

 

 

Nemacolin

5/1/2017 (b)

 

Pennsylvania

 

 

Scioto Downs

 

(a)

Ohio

 

 

Mountaineer

 

(a)

West Virginia

Trop AC

October 1, 2018

New Jersey

Central

Elgin

August 7, 2018

Illinois

Lumière

October 1, 2018

Missouri

Evansville

October 1, 2018

Indiana

(a)

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

(b)

Presque Isle Downs was sold on January 11, 2019 and Nemacolin was sold on March 8, 2019.

 

Presentation of Financial Information

The financial information included in this Item 2 for periods prior to our acquisition of Isle are those of ERI and its subsidiaries. The presentation of information herein for periods prior to our acquisitionacquisitions of IsleElgin and Tropicana and after our acquisitionacquisitions of IsleElgin and Tropicana are not fully comparable because the results of operations for IsleElgin and Tropicana are not included for periods prior to August 7, 2018 and October 1, 2018, respectively. Additionally, the Company closed on its sales of Presque Isle Downs and Nemacolin on January 11, 2019 and March 8, 2019, respectively.


Summary financial results of Tropicana for the three months ended March 31, 2018 is included in Tropicana’s Quarterly Report on Form 10-Q as filed with the SEC. In conjunction with our acquisition of Isle.Tropicana, Tropicana was no longer required to file quarterly and annual reports with the SEC and terminated its registration on October 1, 2018.

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

Key Performance Metrics

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

Significant Factors Impacting Financial Results

The following summary highlights the significant factors impacting our financial results for the three months ended March 31, 20182019 and 2017.2018.

IsleElgin Acquisition Our results of operations for the three months ended March 31, 20182019 include incremental revenues and expenses attributable to Elgin. Transaction expenses related to our acquisition of Elgin totaled $31,000 and $0.6 million, respectively, for the three months ended March 31, 2019 and 2018.

Tropicana Acquisition – Our results of operations for the three months ended March 31, 2019 include incremental revenues and expenses attributable to the thirteenseven properties we acquired in our acquisition of Isle.


Tropicana on October 1, 2018. Transaction expenses related to our acquisition of Isle for legal, accounting, financial advisory services, severance, stock awards and other costsTropicana totaled $1.0 million and $1.6 million for the three months ended March 31, 2018 and 2017, respectively.

Pending AcquisitionsTransaction expenses related to our pending acquisitions of Grand Victoria Casino and Tropicana Entertainment Inc. totaled $0.6$1.5 million and $1.0 million, respectively, for the three months ended March 31, 2019 and 2018.

Pending Isle Acquisition – Transaction expenses related to our acquisition of Isle totaled $1.0 million for the three months ended March 31, 2018.

Master Lease – We account for the Master Lease entered into effective October 1, 2019 with GLPI as a direct financing obligation. As a result, we recorded minimum lease payments and amortization of the direct financing obligation totaling $24.6 million as interest expense for the three months ended March 31, 2019.

Tropicana Financing – On September 20, 2018 we issued $600 million aggregate principal amount of 6.0% senior notes due 2026. The proceeds from the notes were used to fund the Tropicana Acquisition which closed on October 1, 2018. We incurred $9.0 million of incremental interest expense on these notes for the three months ended March 31, 2019.

William Hill and TSG – The amortization of deferred revenues associated with the William Hill and TSG agreements totaled $1.4 million for the three months ended March 31, 2019 and is included in other revenues and operating income.

Dispositions – The sales of Presque Isle Downs and VicksburgNemacolin met the requirements for presentation as assets held for sale under generally accepted accounting principles.principles as of March 31, 2018. However, they did not meet the requirements for presentation as discontinued operations and are included in income from continuing operations for the three months ended March 31, 2018. Based2019 and 2018 prior to their respective sale closing dates. We closed on the triggering event, wesale of Presque Isle Downs on January 11, 2019 and recorded an impairment chargea gain on sale of approximately $21.6 million for the three months ended March 31, 2018 totaling $9.8 million related to our Vicksburg property.

Lake Charles Terminated Sale On August 22, 2016, Isle entered into an agreement to sell its casino and hotel property in Lake Charles, Louisiana, for $134.5 million, subject to a customary purchase price adjustment, to an affiliate of Laguna Development Corporation, a Pueblo of Laguna-owned business based in Albuquerque, New Mexico. On November 21, 2017, we terminated the agreement. The closing of the transaction was subject to certain closing conditions, including obtaining certain gaming approvals, and was to occur2019. We closed on or before the termination date, which had been extended by the parties to November 20, 2017. The buyer did not obtain the required gaming approvals prior to the termination date, and pursuant to the terms of the agreement, and the $20.0 million deposit was forfeited upon termination of the agreement.

In previous periods, the operations of Lake Charles have been classified as discontinued operations and as an asset held for sale. As a result of the termination of the sale Lake Charles is no longer classified as an asset held forof Nemacolin on March 8, 2019 and recorded a gain on sale and as discontinued operations, and is included in our results of operations$0.5 million for the three months ended March 31, 2018.

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

Severe Weather – Our West segment’s operations are subject to seasonal variation, with our lowest business volume generally occurring during the winter months. The northern Nevada region experienced record snowfall and severe weather conditions, including major snow storms during eleven of the fourteen weekends in the 2017 first quarter, making travel to Reno from northern California, our main feeder market, difficult or impossible due to road closures. As a result, there was a significant adverse effect on business levels, especially hotel occupancy and gaming volume, and our operating performance during the three months ended March 31, 2017.2019.

Additionally, ourIn conjunction with the classification of Vicksburg’s operations were impacted system wide by challenging weather in January and February ofas assets held for sale at March 31, 2018 as well as our Reno operations in March of 2018.

Execution of Cost Savings Program – We continue to identify areas to improve property level and consolidated margins through operating and cost efficiencies and exercising financial discipline throughout the company without impacting the guest experience. In addition to cost savings relating to duplicative executive compensation, legal and accounting fees and other corporate expenses that have been eliminated as a result of our acquisitions, we have achieved savings in marketing, foodthe announced sale to CDI, an impairment charge totaling $9.8 million was recorded due to the carrying value exceeding the estimated net sales proceeds. Effective July 6, 2018, the sale of Vicksburg was terminated, and beverage costs, selling, general and administrative expenses, and other operating departmentsVicksburg was no longer presented as an asset held for sale as of March 31, 2019. In connection with this termination, CDI paid us a result of operating efficiencies and purchasing power of the combined Eldorado organization.$5.0 million termination fee.


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

Property Enhancement Capital Expenditures – Property enhancement initiatives and targeted investments that improve our guests’ experiences and elevate our properties’ overall competitiveness in their markets continued throughout 20172018 and into 2018. during the three months ended March 31, 2019.

As part of the continuing evolution of the Reno tri-properties, we are buildingbuilt a new 21,000 square foot spa at Silver Legacy.Legacy which opened in early October 2018. We will have substantially renovated every room at Circus Reno by July and will start the first phase of 300renovations of 400 rooms at Silver Legacy and 42 high-end suites at Eldorado afterin the busy summer season.second half of 2019. In Black Hawk we expect to renovatebegan renovation of all 402 hotel rooms this winter.with an expected completion by the end of the first half of 2019. In addition, recently we announced aour joint venture with the Cordish Companies for thecontinues making progress on development plans of a new world-class, mixed-use entertainment and hospitality destination anchored by our Isle Casino Racing Pompano Park. At Tropicana Atlantic City, we recently opened an expansive, new sportsbook adding excitement and an additional opportunity to drive visitation to the property.

Severe Weather and Construction Disruption – All of our segments, and to a greater extent, our West and Midwest regions, were negatively impacted by severe weather for the three months ended March 31, 2019 compared to the same prior year period.  Additionally, our West segment was negatively impacted by disruption to our casino floor and hotel availability associated with our renovation project at our Black Hawk property.

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


Results of Operations

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

 

 

Three Months Ended

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

March 31,

 

 

Percent

 

 

 

March 31,

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

 

2019

 

 

2018

 

 

Change

 

 

Net revenues

 

$

 

440,192

 

 

$

 

202,393

 

 

 

117.5

 

%

 

$

 

635,823

 

 

$

 

440,192

 

 

 

44.4

 

%

Operating income

 

 

 

54,194

 

 

 

 

14,028

 

 

 

286.3

 

%

 

 

 

123,604

 

 

 

 

54,194

 

 

 

128.1

 

%

Net income

 

 

 

20,855

 

 

 

 

945

 

 

 

2,106.9

 

%

 

 

 

38,229

 

 

 

 

20,855

 

 

 

83.3

 

%

 

Operating Results.  Isle contributed $231.9 million of net revenues duringFor the three months ended March 31, 2018 consisting primarily of gaming revenues. Including2019 compared to the same prior year period, Elgin and Tropicana contributed incremental Isle net revenues totaling $244.3 million and drove a 44.4% increase in net revenues increased 117.5% for the three months ended March 31, 20182019 compared to the three months ended March 31, 2017.same prior year period. Excluding incremental IsleElgin and Tropicana net revenues, net revenues increased 2.9%decreased 11.1% for the three months ended March 31, 20182019 compared to the three months ended March 31, 2017 primarily due to growthsame prior year period including the change in revenues resulting from the West region.

Operating income increased 286.3%sales of Presque Isle Downs and Nemacolin during the current quarter. Excluding the impact of our acquisitions and dispositions, net revenues decreased 3.8% for the three months ended March 31, 20182019 compared to the three months ended March 31, 2017. This increase was primarilysame prior year period mainly due to $39.2the significant factors discussed above.

Operating income increased $69.4 million, of incremental operating income contributed by Isleor 128.1%, for the three months ended March 31, 2018.2019 compared to the same prior year period mainly due to incremental operating income contributed by the acquired Elgin and Tropicana properties combined with a $22.1 million net gain on sale of assets associated with the sales of Presque Isle Downs and Nemacolin. Excluding the impact of our acquisitions and dispositions on operating expenses, operating income increased 64.7% for the three months ended March 31, 2019 compared to the same prior year period principally due to margin improvement associated with cost savings initiatives across all segments.

Net income increased $19.9$17.4 million for the three months ended March 31, 20182019 compared to the three months ended March 31, 2017 primarilysame prior year period principally due to incrementalthe same factors impacting operating income contributedincome. This increase was partially offset by Islehigher interest expense for the three months ended March 31, 2018 partially offset by higher interest expense attributable2019 compared to additionalthe same prior year period resulting from increased debt incurred associated with the Isle Acquisition.Tropicana Acquisition and amortization of the direct financing obligation associated with the Master Lease.


Net Revenues and Operating Income (Loss)

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

 

 

Net Revenues for the Three Months Ended March 31,

 

 

Operating Income for the

Three Months Ended March 31,

 

 

Net Revenues for the Three Months Ended March 31,

 

 

Operating Income (Loss) for the

Three Months Ended March 31,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

West

 

$

 

99,579

 

 

$

 

63,488

 

 

$

 

10,139

 

 

$

 

1,355

 

 

$

 

118,095

 

 

$

 

99,579

 

 

$

 

10,801

 

 

$

 

10,139

 

Midwest

 

 

 

100,795

 

 

 

 

 

 

 

 

26,676

 

 

 

 

 

 

 

 

96,787

 

 

 

 

100,795

 

 

 

 

27,833

 

 

 

 

26,676

 

South

 

 

122,800

 

 

 

32,560

 

 

 

 

13,359

 

 

 

 

5,918

 

 

 

132,714

 

 

 

122,800

 

 

 

 

27,515

 

 

 

 

13,359

 

East

 

 

116,891

 

 

 

106,287

 

 

 

 

19,131

 

 

 

 

15,034

 

 

 

166,233

 

 

 

116,891

 

 

 

 

27,161

 

 

 

 

19,131

 

Central

 

 

120,472

 

 

 

 

 

 

 

27,070

 

 

 

 

 

Corporate

 

 

 

127

 

 

 

 

58

 

 

 

 

(15,111

)

 

 

 

(8,279

)

 

 

 

1,522

 

 

 

 

127

 

 

 

 

3,224

 

 

 

 

(15,111

)

Total

 

$

 

440,192

 

 

$

 

202,393

 

 

$

 

54,194

 

 

$

 

14,028

 

 

$

 

635,823

 

 

$

 

440,192

 

 

$

 

123,604

 

 

$

 

54,194

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Three Months Ended March 31, 20182019 Compared to the Three Months Ended March 31, 20172018

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

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

 

 

 

 

 

Percent

 

 

 

March 31,

 

 

 

 

 

 

 

Percent

 

 

 

2018

 

 

2017

 

 

Variance

 

 

Change

 

 

 

2019

 

 

2018

 

 

Variance

 

 

Change

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and Pari-Mutuel Commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

49,734

 

 

$

 

23,833

 

 

$

 

25,901

 

 

 

108.7

 

%

 

$

 

53,571

 

 

$

 

49,734

 

 

$

 

3,837

 

 

 

7.7

 

%

Midwest

 

 

 

88,359

 

 

 

 

 

 

 

 

88,359

 

 

 

100.0

 

%

 

 

 

85,169

 

 

 

 

88,359

 

 

 

 

(3,190

)

 

 

(3.6

)

%

South

 

 

 

100,918

 

 

 

 

23,169

 

 

 

 

77,749

 

 

 

335.6

 

%

 

 

 

109,350

 

 

 

 

100,918

 

 

 

 

8,432

 

 

 

8.4

 

%

East

 

 

 

104,517

 

 

 

 

95,188

 

 

 

 

9,329

 

 

 

9.8

 

%

 

 

 

124,951

 

 

 

 

104,517

 

 

 

 

20,434

 

 

 

19.6

 

%

Central

 

 

 

97,810

 

 

 

 

 

 

 

 

97,810

 

 

 

100.0

 

%

Total Gaming and Pari-Mutuel Commissions

 

 

 

343,528

 

 

 

 

142,190

 

 

 

 

201,338

 

 

 

141.6

 

%

 

 

 

470,851

 

 

 

 

343,528

 

 

 

 

127,323

 

 

 

37.1

 

%

Non-gaming:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

 

 

49,845

 

 

 

 

39,655

 

 

 

 

10,190

 

 

 

25.7

 

%

 

 

 

64,524

 

 

 

 

49,845

 

 

 

 

14,679

 

 

 

29.4

 

%

Midwest

 

 

 

12,436

 

 

 

 

 

 

 

 

12,436

 

 

 

100.0

 

%

 

 

 

11,618

 

 

 

 

12,436

 

 

 

 

(818

)

 

 

(6.6

)

%

South

 

 

 

21,882

 

 

 

 

9,391

 

 

 

 

12,491

 

 

 

133.0

 

%

 

 

 

23,364

 

 

 

 

21,882

 

 

 

 

1,482

 

 

 

6.8

 

%

East

 

 

 

12,374

 

 

 

 

11,099

 

 

 

 

1,275

 

 

 

11.5

 

%

 

 

 

41,282

 

 

 

 

12,374

 

 

 

 

28,908

 

 

 

233.6

 

%

Central

 

 

 

22,662

 

 

 

 

 

 

 

 

22,662

 

 

 

100.0

 

%

Corporate

 

 

 

127

 

 

 

 

58

 

 

 

 

69

 

 

 

119.0

 

%

 

 

 

1,522

 

 

 

 

127

 

 

 

 

1,395

 

 

 

1,098.4

 

%

Total Non-gaming

 

 

 

96,664

 

 

 

 

60,203

 

 

 

 

36,461

 

 

 

60.6

 

%

 

 

 

164,972

 

 

 

 

96,664

 

 

 

 

68,308

 

 

 

70.7

 

%

Total Net Revenues

 

 

 

440,192

 

 

 

 

202,393

 

 

 

 

237,799

 

 

 

117.5

 

%

 

 

 

635,823

 

 

 

 

440,192

 

 

 

 

195,631

 

 

 

44.4

 

%

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and Pari-Mutuel Commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

 

20,398

 

 

 

10,653

 

 

 

 

9,745

 

 

 

91.5

 

%

 

 

21,048

 

 

 

20,398

 

 

 

 

650

 

 

 

3.2

 

%

Midwest

 

 

 

35,944

 

 

 

 

 

 

 

 

35,944

 

 

 

100.0

 

%

 

 

 

34,480

 

 

 

 

35,944

 

 

 

 

(1,464

)

 

 

(4.1

)

%

South

 

 

 

48,356

 

 

 

 

12,228

 

 

 

 

36,128

 

 

 

295.5

 

%

 

 

 

49,941

 

 

 

 

48,356

 

 

 

 

1,585

 

 

 

3.3

 

%

East

 

 

 

64,853

 

 

 

 

58,307

 

 

 

 

6,546

 

 

 

11.2

 

%

 

 

 

61,286

 

 

 

 

64,853

 

 

 

 

(3,567

)

 

 

(5.5

)

%

Central

 

 

 

43,551

 

 

 

 

 

 

 

 

43,551

 

 

 

100.0

 

%

Total Gaming and Pari-Mutuel Commissions

 

 

 

169,551

 

 

 

 

81,188

 

 

 

 

88,363

 

 

 

108.8

 

%

 

 

 

210,306

 

 

 

 

169,551

 

 

 

 

40,755

 

 

 

24.0

 

%

Non-gaming

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

 

 

33,743

 

 

 

 

27,921

 

 

 

 

5,822

 

 

 

20.9

 

%

 

 

 

39,163

 

 

 

 

33,743

 

 

 

 

5,420

 

 

 

16.1

 

%

Midwest

 

 

 

8,153

 

 

 

 

 

 

 

 

8,153

 

 

 

100.0

 

%

 

 

 

6,504

 

 

 

 

8,153

 

 

 

 

(1,649

)

 

 

(20.2

)

%

South

 

 

 

14,557

 

 

 

 

5,617

 

 

 

 

8,940

 

 

 

159.2

 

%

 

 

 

14,476

 

 

 

 

14,557

 

 

 

 

(81

)

 

 

(0.6

)

%

East

 

 

 

8,234

 

 

 

 

7,728

 

 

 

 

506

 

 

 

6.5

 

%

 

 

 

22,474

 

 

 

 

8,234

 

 

 

 

14,240

 

 

 

172.9

 

%

Central

 

 

 

12,667

 

 

 

 

 

 

 

 

12,667

 

 

 

100.0

 

%

Total Non-gaming

 

 

 

64,687

 

 

 

 

41,266

 

 

 

 

23,421

 

 

 

56.8

 

%

 

 

 

95,284

 

 

 

 

64,687

 

 

 

 

30,597

 

 

 

47.3

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing and promotions

 

 

 

21,301

 

 

 

 

10,129

 

 

 

 

11,172

 

 

 

110.3

 

%

 

 

 

32,301

 

 

 

 

21,301

 

 

 

 

11,000

 

 

 

51.6

 

%

General and administrative

 

 

 

74,202

 

 

 

 

31,800

 

 

 

 

42,402

 

 

 

133.3

 

%

 

 

 

119,888

 

 

 

 

74,202

 

 

 

 

45,686

 

 

 

61.6

 

%

Corporate

 

 

 

11,569

 

 

 

 

6,574

 

 

 

 

4,995

 

 

 

76.0

 

%

 

 

 

16,754

 

 

 

 

11,569

 

 

 

 

5,185

 

 

 

44.8

 

%

Impairment charges

 

 

 

9,815

 

 

 

 

 

 

 

 

9,815

 

 

 

100.0

 

%

 

 

 

958

 

 

 

 

9,815

 

 

 

 

(8,857

)

 

 

(90.2

)

%

Depreciation and amortization

 

 

 

31,534

 

 

 

 

15,604

 

 

 

 

15,930

 

 

 

102.1

 

%

 

 

 

57,757

 

 

 

 

31,534

 

 

 

 

26,223

 

 

 

83.2

 

%

Total Operating Expenses

 

$

 

382,659

 

 

$

 

186,561

 

 

$

 

196,098

 

 

 

105.1

 

%

 

$

 

533,248

 

 

$

 

382,659

 

 

$

 

150,589

 

 

 

39.4

 

%

 

Gaming Revenues and Pari-Mutuel Commissions.  IsleElgin and Tropicana contributed $198.0$171.5 million of incremental gaming revenues and pari-mutuel commissions for the three months ended March 31, 2018 resulting in an increase of 141.6%2019 compared to the three months ended March 31, 2017.

Excluding incrementalsame prior year period. This increase was partially offset by the decline in revenues associated with the dispositions of Presque Isle gaming revenuesDowns and pari-mutuel commissions, gaming revenues and pari-mutuel commissions increased 2.3%Nemacolin for the three months ended March 31, 20182019 compared to the same prior year period, resulting in a 37.1% increase in gaming revenues and pari-mutuel commission.


Excluding incremental Elgin and Tropicana gaming revenues and pari-mutuel commissions and the impact of the Presque Isle Downs and Nemacolin dispositions, gaming revenues and pari-mutuel commissions decreased 4.4% for the three months ended March 31, 2017 mainly2019 compared to the same prior year period primarily due to higher gamingreductions in casino volume associated with declines in promotional and free play offers. Additionally, construction disruption affected our West segment and severe weather negatively impacted our visitor volume across all segments contributing to the declines in casino revenues induring the West region driven by increased visitor traffic and milder weather.current period.

Non-gaming Revenues.  IsleElgin and Tropicana contributed $33.8$72.8 million of incremental non-gaming revenues for the three months ended March 31, 20182019, which was partially offset by declines in non-gaming revenues attributable to the Presque Isle Downs and Nemacolin dispositions, resulting in an increase of 60.6% in non-gaming revenues70.7% over the same prior year period.

Excluding incremental IsleElgin and Tropicana non-gaming revenues and the impact of the Presque Isle Downs and Nemacolin dispositions, non-gaming revenues increased 4.4%decreased 1.8% for the three months ended March 31, 20182019 compared to the same prior year period. Non-gamingThis decline was primarily driven by lower non-gaming revenues, mainly in theour West segment, increased for the three months ended March 31, 2018 compared to the same prior year period principally due to higher hotelresulting from reductions in promotional offers, construction disruption and food revenues


associated with increasedsevere weather that negatively impacted visitor traffic, milder weather and also benefitted from the Reno properties’ capital improvements including renovated hotel rooms and new food, beverage and entertainment offerings.traffic.

Gaming Expenses and Pari-Mutuel Commissions. IsleElgin and Tropicana contributed $87.8$69.5 million of incremental gaming expenses and pari-mutuel commissions for the three months ended March 31, 20182019, which was partially offset by the Presque Isle Downs and Nemacolin dispositions, resulting in an increase of 108.8%24.0% in gaming expenses and pari-mutuel commissions over the same prior year period.

Excluding incremental IsleElgin and Tropicana gaming expenses and pari-mutuel commissions, and the impact of the Presque Isle Downs and Nemacolin dispositions, gaming expenses and pari-mutuel commissions remained flatdecreased 5.2% for the three months ended March 31, 20182019 compared to the same prior year period despiteperiod. Gaming expenses declined in comparison to the increase in gaming revenuessame prior year period due to savings initiatives targeted at reducing variable expenses alongcombined with continued synergies. Additionally, successfullower volume. Successful efforts to control costs and maximize departmental profit across all segments also drove the improved departmental profit margin during the three months ended March 31, 20182019 compared to the same prior year period.

Non-gaming Expenses.  IsleElgin and Tropicana contributed $23.2$39.3 million of incremental non-gaming expenses for the three months ended March 31, 20182019, which was partially offset by the Presque Isle Downs and Nemacolin dispositions, resulting in an increase of 56.8%47.3% over the same prior year period.

Excluding incremental IsleElgin and Tropicana non-gaming expenses, and the impact of the Presque Isle Downs and Nemacolin dispositions, non-gaming expenses remained flatdecreased 10.5% for the three months ended March 31, 20182019 compared to the same prior year period. IncreasedDecreased non-gaming expenses across all segments were associated with higherlower non-gaming revenues along with continued efforts to reduce variable expenses including labor and hotel occupancy in the West segment were offset by lower non-gaming expenses in the South and East segments. Additionally, the growth in hotel ADR in the West segment contributed to improved non-gaming margins three months ended March 31, 2018 compared to the same prior year period.cost of sales.

Marketing and Promotions Expenses.  IsleElgin and Tropicana contributed $11.2$17.0 million of incremental marketing and promotions expense for the three months ended March 31, 20182019, which was partially offset by the Presque Isle Downs and Nemacolin dispositions, resulting in an increase of 110.3%51.6% over the same prior year period.

Excluding incremental IsleElgin and Tropicana marketing and promotions expenses, and the impact of the Presque Isle Downs and Nemacolin dispositions, consolidated marketing and promotions expense remained flatdecreased 23.7% for the three months ended March 31, 20182019 compared to the same prior year period. This decline was primarily due to synergies achieved via the termination of certain marketing contracts and continued company-wide reductions in marketing and promotional spend.  

General and Administrative Expenses.  IsleElgin and Tropicana contributed $41.4$53.5 million of general and administrative expense for the three months ended March 31, 20182019, which was partially offset by the Presque Isle Downs and Nemacolin dispositions, resulting in an increase of 133.3%61.6% over the same prior year period.    

Excluding incremental IsleElgin and Tropicana general and administrative expenses, and the impact of the Presque Isle Downs and Nemacolin dispositions, consolidated general and administrative expenses increased 3.1%decreased 5.2% for the three months ended March 31, 20182019 compared to the same 2017prior year period mainly due to the centralization of expenses attributable tocertain corporate services provided to our properties that is charged to general and administrative expenses.realized savings achieved through consolidated purchasing programs.

Corporate Expenses.  For the three months ended March 31, 20182019 compared to the same prior year period, corporate expenses increased primarily due to payroll and other expenses associated with additional corporate costs, including stock compcompensation expense, driven by growth related to the Isle Acquisition.Company’s acquisitions.


Impairment Charges. We recorded an impairment charge for the three months ended March 31, 2019 totaling $1.0 million related to our non-operating real property located in Pennsylvania. In conjunction with the classification of Vicksburg’s operations as assets held for sale, we recorded an impairment charge totaling $9.8 million for the three months ended March 31, 2018.

Depreciation and Amortization Expense.  IsleElgin and Tropicana contributed $17.4$24.4 million of depreciation and amortization expense for the three months ended March 31, 20182019 resulting in an increase of 102.1%83.2% over the same prior year period.  

Excluding incremental IsleElgin and Tropicana depreciation and amortization expense, depreciation and amortization expense decreased 9.7%increased 10.8% for the three months ended March 31, 20182019 compared to the same prior year period mainly due to lower depreciation due to assets becoming fully depreciated across all segments.asset additions primarily at our three Reno properties.

Supplemental Unaudited Presentation of Consolidated Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA for the Three Months Ended March 31, 20182019 and 20172018

Adjusted EBITDA (defined below), a non-GAAP financial measure, has been presented as a supplemental disclosure because it is a widely used measure of performance and basis for valuation of companies in our industry and we believe that this non-GAAP supplemental information will be helpful in understanding the Company’s ongoing operating results. Management has historically used Adjusted EBITDA when evaluating operating performance because we believe that the inclusion or exclusion of certain recurring and non-recurring items is necessary to provide a full understanding of our core operating results and as a means to evaluate period-to-period results. Adjusted EBITDA represents operating income (loss) before depreciation and amortization, stock basedstock-based compensation, transaction expenses, severance expense, selling costs associated with the Vicksburg and Presquedisposition of properties, proceeds from terminated sales, preopening expenses, business interruption insurance proceeds, real estate tax settlements, other than temporary impairments on investments, impairment charges, equity in income (loss) of unconsolidated affiliates, (gain) loss on the sale or disposal of property and equipment, (gain) loss associated with the sales of Presque Isle Downs and Nemacolin and other non-cash regulatory gaming assessments, includingassessments. Adjusted EBITDA also excludes the impact ofexpense associated with our Master Lease with GLPI as the change in regulatory reporting requirements, to the extent that such items existed in the periods presented.transaction was accounted for as a financing obligation. Adjusted EBITDA is not a measure of performance or liquidity calculated in accordance


with accounting principles generally accepted in the United States (“US GAAP”), is unaudited and should not be considered an alternative to, or more meaningful than, net income (loss) as an indicator of our operating performance. Uses of cash flows that are not reflected in Adjusted EBITDA include capital expenditures, interest payments, income taxes, debt principal repayments, payments under our Master Lease 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 months ended March 31, 20182019 and 2017,2018, in addition to reconciling Adjusted EBITDA to operating income (loss) in accordance with US GAAP (unaudited, in thousands):

 

 

Three Months Ended March 31, 2018

 

 

Three Months Ended March 31, 2019

 

 

Operating

Income (Loss)

 

 

Depreciation and Amortization

 

 

Stock-Based Compensation

 

 

Transaction Expenses (3)

 

 

Other (4)

 

 

Adjusted

EBITDA

 

 

Operating

Income (Loss)

 

 

Depreciation and Amortization

 

 

Stock-Based Compensation

 

 

Transaction Expenses (6)

 

 

Other (7)

 

 

Adjusted

EBITDA

 

Including Divestitures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

10,139

 

 

$

 

8,189

 

 

$

 

63

 

 

$

 

 

 

$

 

33

 

 

$

 

18,424

 

 

$

 

10,801

 

 

$

 

13,143

 

 

$

 

 

 

$

 

 

 

$

 

99

 

 

$

 

24,043

 

Midwest

 

 

26,676

 

 

 

7,645

 

 

 

44

 

 

 

 

 

 

150

 

 

 

34,515

 

 

 

27,833

 

 

 

8,421

 

 

 

15

 

 

 

 

 

 

55

 

 

 

36,324

 

South

 

 

 

13,359

 

 

 

8,531

 

 

 

25

 

 

 

 

 

 

10,302

 

 

 

32,217

 

 

 

 

27,515

 

 

 

11,015

 

 

 

9

 

 

 

 

 

 

132

 

 

 

38,671

 

East

 

 

 

19,131

 

 

 

6,049

 

 

 

5

 

 

 

 

 

 

995

 

 

 

26,180

 

 

 

 

27,161

 

 

 

12,149

 

 

 

7

 

 

 

 

 

 

187

 

 

 

39,504

 

Central

 

 

 

27,070

 

 

 

11,210

 

 

 

 

 

 

 

 

 

43

 

 

 

38,323

 

Corporate and Other

 

 

 

(15,111

)

 

 

 

1,120

 

 

 

 

3,542

 

 

 

 

2,548

 

 

 

 

109

 

 

 

 

(7,792

)

 

 

 

3,224

 

 

 

 

1,819

 

 

 

 

4,917

 

 

 

 

1,894

 

 

 

 

(22,067

)

 

 

 

(10,213

)

Total

 

$

 

54,194

 

 

$

 

31,534

 

 

$

 

3,679

 

 

$

 

2,548

 

 

$

 

11,589

 

 

$

 

103,544

 

 

$

 

123,604

 

 

$

 

57,757

 

 

$

 

4,948

 

 

$

 

1,894

 

 

$

 

(21,551

)

 

$

 

166,652

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Divestitures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

East

 

$

 

(91

)

 

$

 

 

 

$

 

7

 

 

$

 

 

 

$

 

46

 

 

$

 

(38

)

Total Divestitures (1)

 

$

 

(91

)

 

$

 

 

 

$

 

7

 

 

$

 

 

 

$

 

46

 

 

$

 

(38

)

 

Three Months Ended March 31, 2017 (5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating

Income (Loss)

 

 

Depreciation and Amortization

 

 

Stock-Based Compensation

 

 

Transaction Expenses (3)

 

 

Other (4)

 

 

Adjusted

EBITDA

 

Excluding Pre-Acquisition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excluding Divestitures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

1,355

 

 

$

 

4,643

 

 

$

 

 

 

$

 

 

 

$

 

160

 

 

$

 

6,158

 

 

$

 

10,801

 

 

$

 

13,143

 

 

$

 

 

 

$

 

 

 

$

 

99

 

 

$

 

24,043

 

Midwest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27,833

 

 

 

8,421

 

 

 

15

 

 

 

 

 

 

55

 

 

 

36,324

 

South

 

 

 

5,918

 

 

 

1,932

 

 

 

 

 

 

 

 

 

 

 

 

7,850

 

 

 

 

27,515

 

 

 

11,015

 

 

 

9

 

 

 

 

 

 

132

 

 

 

38,671

 

East

 

 

 

15,034

 

 

 

8,880

 

 

 

 

 

 

 

 

 

156

 

 

 

24,070

 

 

 

 

27,252

 

 

 

12,149

 

 

 

 

 

 

 

 

 

141

 

 

 

39,542

 

Central

 

 

 

27,070

 

 

 

11,210

 

 

 

 

 

 

 

 

 

43

 

 

 

38,323

 

Corporate and Other

 

 

 

(8,279

)

 

 

 

149

 

 

 

 

1,733

 

 

 

 

1,614

 

 

 

 

(11

)

 

 

 

(4,794

)

 

 

 

3,224

 

 

 

 

1,819

 

 

 

 

4,917

 

 

 

 

1,894

 

 

 

 

(22,067

)

 

 

 

(10,213

)

Total Excluding Pre-Acquisition

 

$

 

14,028

 

 

$

 

15,604

 

 

$

 

1,733

 

 

$

 

1,614

 

 

$

 

305

 

 

$

 

33,284

 

Total Excluding Divestitures (2)

 

$

 

123,695

 

 

$

 

57,757

 

 

$

 

4,941

 

 

$

 

1,894

 

 

$

 

(21,597

)

 

$

 

166,690

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-Acquisition (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2018

 

 

Operating

Income��(Loss)

 

 

Depreciation and Amortization

 

 

Stock-Based Compensation

 

 

Transaction Expenses (6)

 

 

Other (8)

 

 

Adjusted

EBITDA

 

Excluding Pre-Acquisition / Including Divestitures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

6,816

 

 

$

 

2,769

 

 

$

 

6

 

 

$

 

 

 

$

 

 

 

$

 

9,591

 

 

$

 

10,139

 

 

$

 

8,189

 

 

$

 

63

 

 

$

 

 

 

$

 

33

 

 

$

 

18,424

 

Midwest

 

 

24,182

 

 

 

9,951

 

 

 

37

 

 

 

 

 

 

 

 

 

34,170

 

 

 

26,676

 

 

 

7,645

 

 

 

44

 

 

 

 

 

 

150

 

 

 

34,515

 

South

 

 

 

19,347

 

 

 

4,252

 

 

 

26

 

 

 

74

 

 

 

 

 

 

23,699

 

 

 

 

13,359

 

 

 

8,531

 

 

 

25

 

 

 

 

 

 

10,302

 

 

 

32,217

 

East

 

 

 

(875

)

 

 

713

 

 

 

 

 

 

 

 

 

 

 

 

(162

)

 

 

 

19,131

 

 

 

6,049

 

 

 

5

 

 

 

 

 

 

995

 

 

 

26,180

 

Central

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and Other

 

 

 

(6,261

)

 

 

 

275

 

 

 

 

1,170

 

 

 

 

 

 

 

 

549

 

 

 

 

(4,267

)

 

 

 

(15,111

)

 

 

 

1,120

 

 

 

 

3,542

 

 

 

 

2,548

 

 

 

 

109

 

 

 

 

(7,792

)

Total Pre-Acquisition

 

$

 

43,209

 

 

$

 

17,960

 

 

$

 

1,239

 

 

$

 

74

 

 

$

 

549

 

 

$

 

63,031

 

Total Excluding Pre-Acquisition / Including Divestitures:

 

$

 

54,194

 

 

$

 

31,534

 

 

$

 

3,679

 

 

$

 

2,548

 

 

$

 

11,589

 

 

$

 

103,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Including Pre-Acquisition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Divestitures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

East

 

$

 

3,002

 

 

$

 

1,415

 

 

$

 

5

 

 

$

 

 

 

$

 

285

 

 

$

 

4,707

 

Total Divestitures (3)

 

$

 

3,002

 

 

$

 

1,415

 

 

$

 

5

 

 

$

 

 

 

$

 

285

 

 

$

 

4,707

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-Acquisition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

8,171

 

 

$

 

7,412

 

 

$

 

6

 

 

$

 

 

 

$

 

160

 

 

$

 

15,749

 

 

$

 

4,674

 

 

$

 

3,084

 

 

$

 

 

 

$

 

 

 

$

 

8

 

 

$

 

7,766

 

Midwest

 

 

24,182

 

 

 

9,951

 

 

 

37

 

 

 

 

 

 

 

 

 

34,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

South

 

 

 

25,265

 

 

 

6,184

 

 

 

26

 

 

 

74

 

 

 

 

 

 

31,549

 

 

 

 

1,386

 

 

 

2,027

 

 

 

 

 

 

 

 

 

8

 

 

 

3,421

 

East

 

 

 

14,159

 

 

 

9,593

 

 

 

 

 

 

 

 

 

156

 

 

 

23,908

 

 

 

 

8,404

 

 

 

7,876

 

 

 

 

 

 

 

 

 

96

 

 

 

16,376

 

Central

 

 

 

27,006

 

 

 

8,105

 

 

 

 

 

 

 

 

 

20

 

 

 

35,131

 

Corporate and Other

 

 

 

(14,540

)

 

 

 

424

 

 

 

 

2,903

 

 

 

 

1,614

 

 

 

 

538

 

 

 

 

(9,061

)

 

 

 

(5,950

)

 

 

 

632

 

 

 

 

 

 

 

 

472

 

 

 

 

 

 

 

 

(4,846

)

Total Including Pre-Acquisition (2)

 

$

 

57,237

 

 

$

 

33,564

 

 

$

 

2,972

 

 

$

 

1,688

 

 

$

 

854

 

 

$

 

96,315

 

Total Pre-Acquisition (4)

 

$

 

35,520

 

 

$

 

21,724

 

 

$

 

 

 

$

 

472

 

 

$

 

132

 

 

$

 

57,848

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Including Pre-Acquisition / Excluding Divestitures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


West

 

$

 

14,813

 

 

$

 

11,273

 

 

$

 

63

 

 

$

 

 

 

$

 

41

 

 

$

 

26,190

 

Midwest

 

 

 

26,676

 

 

 

 

7,645

 

 

 

 

44

 

 

 

 

 

 

 

 

150

 

 

 

 

34,515

 

South

 

 

 

14,745

 

 

 

 

10,558

 

 

 

 

25

 

 

 

 

 

 

 

 

10,310

 

 

 

 

35,638

 

East

 

 

 

24,533

 

 

 

 

12,510

 

 

 

 

 

 

 

 

 

 

 

 

806

 

 

 

 

37,849

 

Central

 

 

 

27,006

 

 

 

 

8,105

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

35,131

 

Corporate and Other

 

 

 

(21,061

)

 

 

 

1,752

 

 

 

 

3,542

 

 

 

 

3,020

 

 

 

 

109

 

 

 

 

(12,638

)

  Total Including Pre-Acquisition / Excluding Divestitures (5)

 

$

 

86,712

 

 

$

 

51,843

 

 

$

 

3,674

 

 

$

 

3,020

 

 

$

 

11,436

 

 

$

 

156,685

 

 

(1)

Figures are for Presque Isle Downs for the period beginning January 1, 2019 and ending January 11, 2019 and Nemacolin for the period beginning January 1, 2019 and ending March 8, 2019.

(2)

Total figures for 2019 exclude results of operations for Presque Isle Downs and Nemacolin.

(3)

Figures are for Presque Isle Downs and Nemacolin for the three months ended March 31, 2017. Such figures were prepared by2018.

(4)

Figures are for Elgin and Tropicana for the Company to reflect Isle’s unaudited consolidated historical operating revenues, operating income and Adjusted EBITDA for periods corresponding to the Company’s fiscal quarterly calendar.three months ended March 31, 2018. 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)(5)

Total figures for 2017three months ended March 31, 2018 include combined results of operations for IsleElgin, Tropicana and the Company and exclude results of operations for periods preceding the date that the Company acquired Isle.Presque Isle Downs and Nemacolin. Such presentation does not conform with GAAP or the Securities and Exchange Commission rules for proformapro forma presentation; however, we believe that the additional financial information will be helpful to investors in comparing current results with results of prior periods. This is non-GAAP data and should not be


considered a substitute for data prepared in accordance with GAAP, but should be viewed in addition to the results of operations reported by the Company.

(3)(6)

Transaction expenses represent costs related to the acquisitionacquisitions of IsleElgin and Tropicana for the three months ended March 31, 2018 and 20172019 and costs related to the acquisitions of Grand Victoria CasinoElgin, Tropicana and Tropicana Entertainment Inc.Isle for the three months ended March 31, 2018.

(4)(7)

Other, for the three months ended March 31, 2019, is comprised of severance expense, $9.8 million in impairment charges, (gain) loss on the sale or disposal of property and equipment, equity in income (loss) of unconsolidated affiliate, other regulatory gaming assessmentsimpairment charges, and the (gain) loss associated with the sales of Presque Isle Downs and Nemacolin.

(8)

Other for the three months ended March 31, 2018 is comprised of severance expense, gain (loss) on the sale or disposal of property and 2017 andequipment, equity in income (loss) of an unconsolidated affiliate, an impairment charge at Vicksburg, selling costs associated with the salesdispositions of Presque Isle Downs, the terminated sale of Vicksburg and Presque Isle Downs for the three months ended March 31, 2018.

(5)

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

Liquidity and Capital Resources

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

Our primary sources of liquidity and capital resources have been existing cash, cash flow from operations, borrowings under our revolving credit facility, and proceeds from the issuance of debt securities.securities and proceeds from our recent disposition of Presque Isle Downs. As of March 31, 2019, we had $40.0 million outstanding and $447.7 million of available borrowing capacity, after consideration of $12.3 million in outstanding letters of credit, under our Revolving Credit Facility.  We applied approximately $150.0 million of proceeds from the sale of Presque Isle Downs to temporarily repay amounts outstanding under the Revolving Credit Facility.  Pursuant to the terms of the indentures governing the Company’s senior notes, the Company will be required to make an offer to purchase a portion of its outstanding senior notes with the excess proceeds from such sale unless it applies the net proceeds of such sale to either permanently repay outstanding indebtedness or make specified acquisitions or capital expenditures within 365 days of the sale of Presque Isle Downs.


Our cash requirements can fluctuate significantly depending on our decisions with respect to business acquisitions or dispositions and strategic capital investments to maintain the quality of our properties. We expect that our primary capital requirements going forward will relate to the operation and maintenance of our properties, taxes, servicing our outstanding indebtedness, rent payments under our Master Lease and fundingcontinued costs associated with the recently announcedElgin and Tropicana acquisitions. During the remainder of 2018,2019, we plan to spend $128.4approximately $161.6 million on capital expenditures including capital expenditures for the properties purchased in the Elgin and $96.4 million to pay interest on our outstanding indebtedness. However, we expect that ourTropicana acquisitions. Our capital requirements for interests on our outstanding debt will increasehave increased significantly following the consummation of the acquisitionacquisitions of Tropicana Entertainment and the Grand Victoria Casino and the related incurrenceElgin, including as a result of debt andthe obligation to pay annual rent in an initial amount of approximately $110$87.6 million under the master leaseMaster Lease with respect to certain of the Tropicana properties. We also expect that our capital expenditures will increase significantly following the acquisition of Tropicana Entertainmentproperties and the Grand Victoria Casino andrequired payments under the related increase inLumière Note.  

We funded the number of properties in our portfolio.  We expect to fund the $327.5$328.8 million of cash consideration for the acquisition of the Grand Victoria CasinoElgin Acquisition using cash from pending asset sales, cash from ongoing operations and borrowings under our revolving credit facility and we intend to fund cash considerationfacility. We funded the $246 million purchase of approximatelythe real estate underlying Lumière with the proceeds of the Lumière Note. We funded the $640 million payable by usconsideration in the Tropicana transactionAcquisition and repay debtthe repayment of amounts outstanding under Tropicana’sthe Tropicana credit facility with cash generated from our current operations, proceeds from pending asset sales, Tropicana’s cash on hand and cash flow generatedon hand at Tropicana, borrowings under our revolving credit facility and proceeds from Tropicana operations through closing andour offering of $600 million of committed debt financing.6.0% senior notes due 2026. In addition, the Company has obtained commitments to increase itsour borrowing capacity on our revolving credit facility increased from $300 million to $500 million effective at the time ofsubstantially concurrently with the consummation of the Tropicana Acquisition on October 1, 2018 and expects to extendwe extended the maturity of the revolving credit facility to five years following the consummation of the Tropicana Acquisition.October 1, 2023. We expect that cash generated from operations will be sufficient to fund our operations and capital requirements, and service our outstanding indebtedness for the next twelve months.

At March 31, 2019, we had consolidated cash and cash equivalents of $216.9 million, excluding restricted cash. At March 31, 2018, we had consolidated cash and cash equivalents of $183.1 million. At March 31, 2017, we had consolidated cash and cash equivalents of $44.6 million.million, excluding restricted cash. This increase in cash was primarily relateddue to cash flow generated from our operations and cash acquired in our acquisition of Isle combined with cash flow generated by our operations.the Elgin and Tropicana acquisitions.

Operating Cash Flow.  For the three months ended March 31, 2018,2019, cash flows provided by operating activities totaled $78.0$65.4 million compared to $5.2$78.0 million duringfor the same prior year period. The increasedecrease in operating cash was primarily due to incremental operating cash generated bytax payments related to the acquired Isle propertiesTropicana transaction for the three months ended March 31, 2019 combined with changes in the balance sheet accounts in the normal course of business.

Investing Cash Flow and Capital Expenditures.  Net cash flows used inprovided by investing activities totaled $21.1$129.5 million for the three months ended March 31, 20182019 compared to $383.1$21.1 million used for investing activities in the same prior year period. Net cash provided by investing activities for the three months ended March 31, 2019 was primarily due to $177.1 million in net proceeds from the sales of Presque Isle Downs and Nemacolin. This increase was partially offset by cash used totaling $38.4 million for capital expenditures for various property enhancement and maintenance projects along with equipment purchases. Net cash flows used in investing activities infor the three months ended March 31, 2018 were due toconsisted primarily of $21.3 million inrelated to capital expenditures for various property enhancement and maintenance projects and equipment purchases. Net cash flows used in investing activities for the


three months ended March 31, 2017 primarily consisted of $376.8 million related to escrowed funds associated with the Isle of Capri acquisition which closed on May 1, 2017, and $6.2 million in capital expenditures for various property enhancement and maintenance projects and equipment purchases.

Financing Cash Flow.  Net cash used forin financing activities for the three months ended March 31, 20182019 totaled $8.0$209.8 million compared to $361.1$8.0 million net cash provided by financing activities infor the same prior year period. The cash used forin financing activities for the three months ended March 31, 20182019 was principally due to $7.5 millionnet payments under the Revolving Credit Facility partially funded by the proceeds from the sales of net taxes paid related to net share settlement of equity awards.Presque Isle Downs and Nemacolin. During the three months ended March 31, 2017,2018, cash provided byused in financing activities consisted primarily of $375$7.5 million for payments of proceeds from the issuancetaxes related to net share settlements of 6% Senior Notes partially offset by net payments under the Prior Credit Facility and debt issuance costs.equity awards.

Debt Obligations

7% Senior NotesShare Repurchase Program

On July 23, 2015, weNovember 8, 2018, the Company issued at par $375.0a press release announcing that its Board of Directors has authorized a $150 million in aggregate principal amount of 7.0% senior notes due 2023 (“7% Senior Notes”common stock repurchase program (the “Share Repurchase Program”) pursuant to which the indenture, dated asCompany may, from time to time,  repurchase shares of July 23, 2015 (the “7% Senior Notes Indenture”), between us and U.S. Bank, National Association, as Trustee. The 7% Senior Notes will mature on August 1, 2023, with interest payable semi-annually in arrears on February 1 and August 1 of each year.

On or after August 1, 2018, we may redeem all or a portion of the 7% Senior Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of the principal amount) set forth below plus accrued and unpaid interest and additional interest, if any,common stock on the 7% Senior Notes redeemed,open market (either with or without a 10b5-1 plan) or through privately negotiated transactions. The Share Repurchase Program has no time limit and may be suspended or discontinued at any time without notice. There is no minimum number of shares of common stock that the Company is required to repurchase under the applicable redemption date, if redeemedShare Repurchase Program.

The Company acquired 223,823 shares of common stock at an aggregate value of $9.1 million and an average of $40.80 per share during the twelve month period beginning on August 1 ofyear ended December 31, 2018. No shares were repurchased during the years indicated below:three months ended March 31, 2019.

Year

 

Percentage

 

 

2018

 

 

105.250

 

%

2019

 

 

103.500

 

%

2020

 

 

101.750

 

%

2021 and thereafter

 

 

100.000

 

%

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

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

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

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

create liens;

transfer and sell assets;

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

enter into certain transactions with affiliates;

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

create restrictions on dividends or other payments by restricted subsidiaries.


These covenants are subjectDebt Obligations

Term Loan and Revolving Credit Facility

The Company is party to a number of exceptions and qualifications as set forth in the 7% Senior Notes Indenture. The 7% Senior Notes Indenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on such 7% Senior Notes to be declared due and payable. As of March 31, 2018, we were in compliance with all of the covenants under the 7% Senior Notes Indenture relating to the 7% Senior Notes.

6% Senior Notes

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

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

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

Year

 

Percentage

 

 

2020

 

 

104.500

 

%

2021

 

 

103.000

 

%

2022

 

 

101.500

 

%

2023 and thereafter

 

 

100.000

 

%

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

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

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

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

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

create liens;

transfer and sell assets;

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


enter into certain transactions with affiliates;

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

create restrictions on dividends or other payments by restricted subsidiaries.

These covenants are subject to a number of exceptions and qualifications as set forth in the 6% Senior Notes Indenture. The 6% Senior Notes Indenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on such 6% Senior Notes to be declared due and payable. As of March 31, 2018, we were in compliance with all of the covenants under the 6% Senior Notes Indenture relating to the 6% Senior Notes.

Credit Facility

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

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

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

New Credit Facility

On April 17, 2017, Eagle II entered into a new credit agreement by and among Eagle II, as initial borrower,with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto dated as of April 17, 2017 (as amended, the “Credit Facility”), consisting of a $1.45 billion term loan facility (the “Term Loan Facility” or “Term Loan”) and a $300.0$500.0 million revolving credit facility which was undrawn at closing. (the “Revolving Credit Facility”).The proceeds of the new term loan facility, and additional funds in the amount of $4.5 million in respect of interest expected to be accrued on the new term loan facility, were placed in escrow pending satisfaction of certain conditions, including consummation of our acquisition of Isle. In connection with the consummation of our acquisition of Isle on May 1, 2017, the escrowed funds were released and we assumed Eagle II’sCompany’s obligations under the new credit facility and certain of our subsidiaries (including Isle and certain of its subsidiaries) executed guarantees of ourRevolving Credit Facility will mature on October 1, 2023. The Company’s obligations under the new credit facility.

As of March 31, 2018, we had $956.8 million outstanding on the new term loan. There were no borrowings outstanding under the new revolving credit facility as of March 31, 2018. We had $291.5 million of available borrowing capacity, after consideration of $8.5 million in outstanding letters of credit, under our new revolving credit facility as of March 31, 2018. We have obtained commitments to increase our revolving credit facility from $300 million to $500 million effective at the time of the consummation of the Tropicana Acquisition. At March 31, 2018, the weighted average interest rate on the new term loan was 3.9% based upon the weighted average interest rate of borrowings outstanding during the three months ended March 31, 2018.

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

Our obligations under the new revolving credit facility currently mature on April 17, 2022. However, we expect that, in connection with the consummation of the Tropicana Acquisition, the maturity of the revolving credit facility will be extended to the date that is five years following the consummation of the Tropicana Acquisition. Our obligations under the new term loan facilityTerm Loan Facility will mature on April 17, 2024. We wereThe Company was required to make quarterly principal payments in an amount equal toof $3.6 million on the new term loan facilityTerm Loan Facility on the last day of each fiscal quarter beginning on June 30, 2017. We2017 but satisfied this requirement as a result of the principal prepayment of $444.5 million on September 13, 2017 in conjunction with the issuance of the additional 6% Senior Notes.Notes due 2025. In addition, we arethe Company is required to make mandatory payments of amounts outstanding under the new credit facilityCredit Facility with the proceeds of certain casualty events, debt issuances, and asset sales and, depending on its consolidated total leverage ratio, we arethe Company may be required to apply a portion of its excess cash flow to repay amounts outstanding under the newCredit Facility.

As of March 31, 2019, the Company had $956.8 million outstanding on the Term Loan and $40.0 million outstanding under the Revolving Credit Facility. The Company had $447.7 million of available borrowing capacity, after consideration of $12.3 million in outstanding letters of credit facility.under its Revolving Credit Facility as of March 31, 2019. The Company applied approximately $150.0 million of proceeds from the sale of Presque Isle Downs to temporarily repay amounts outstanding under the Revolving Credit Facility.  Pursuant to the terms of the indentures governing the Company’s senior notes, the Company will be required to make an offer to purchase a portion of its outstanding senior notes with the excess proceeds from such sale unless it applies the net proceeds of such sale to either permanently repay outstanding indebtedness or make specified acquisitions or capital expenditures within 365 days of the sale of Presque Isle Downs.


The interest rate per annum applicable to loans under the new revolving credit facility is,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%, whichthe margin is based on our total leverage ratio. The interest rate per annum applicable to the loans under the new term loan facilityTerm 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. Additionally, the term of the new term loan facility or the new revolving credit facility. Additionally, we payCompany pays a commitment fee on the unused portion of the new revolving credit facility in the amountRevolving Credit Facility of 0.50% per annum.

The new credit facility is secured by substantially all of our personal property assets and substantially all personal property assets of each subsidiary that guaranties At March 31, 2019, the new credit facility (other than certain subsidiary guarantors designated as immaterial), whether ownedweighted average interest rates on the closing dateTerm Loan and Revolving Credit Facility were 4.88% and 4.50%, respectively.

Senior Notes

6% Senior Notes due 2026

On September 20, 2018, Delta Merger Sub, Inc. (“Escrow Issuer”), a Delaware corporation and a wholly-owned subsidiary of the new credit facility or thereafter acquired, and mortgages on certain real property and improvements owned or leased by us or the new credit facility guarantors. The new credit facility is also secured by a pledgeCompany, issued $600 million aggregate principal amount of all of the equity owned by us and the new credit facility guarantors (subject6.0% senior notes due 2026 (the “6% Senior Notes due 2026”) pursuant to certain gaming law restrictions).

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

The new credit facility also includes certain financial covenants, including the requirements that we maintain throughout the term of the new credit facility and measuredan indenture, dated as of the end of each fiscal quarter,September 20, 2018 (the “2026 Indenture”), between Escrow Issuer and solely with respect to loans under the new revolving credit facility, a maximum consolidated total leverage ratio of not more than 6.50 to 1.00 for the period beginningU.S. Bank, National Association, as Trustee. Interest on the closing date and ending with the fiscal quarter ending December 31, 2018, 6.00 to 1.00 for the period beginning with the fiscal quarter beginning January 1, 2019 and ending with the fiscal quarter ending December 31, 2019, and 5.50 to 1.00 for the period beginning with the fiscal quarter beginning January 1, 2020 and thereafter. We will also be required to maintain an interest coverage ratio in an amount not less than 2.00 to 1.00 measured on the last day of each fiscal quarter beginning on the closing date, and ending with the fiscal quarter ending December 31, 2018, 2.50 to 1.00 for the period beginning with the fiscal quarter beginning January 1, 2019 and ending with the fiscal quarter ending December 31, 2019, and 2.75 to 1.00 for the period beginning with the fiscal quarter beginning January 1, 2020 and thereafter.

The new credit facility contains a number of customary events of default, including, among others, for the non-payment of principal, interest or other amounts, the inaccuracy of certain representations and warranties, the failure to perform or observe certain covenants, a cross default to our other indebtedness, including the 6% Senior Notes due 2026 will be paid every semi-annually in arrears on March 15 and September 15.

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


6% Senior Notes due 2025

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

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

7% Senior Notes due 2023

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

Lumière Loan

We borrowed $246 million from GLPI to fund the entire purchase price of the real estate underlying Lumière. The Lumière Loan bears interest at a rate equal to (i) 9.09% until October 1, 2019 and (ii) 9.27% until October 1, 2020, and matures on October 1, 2020. The Lumière Loan is secured by a first priority mortgage on the Lumière real property until October 1, 2019. In connection with the issuance of the Lumière Loan, we agreed to use our commercially reasonable efforts to transfer one or insolvency, certain ERISA events,more of the invalidityGrand Victoria Casino, Isle Casino Bettendorf, Isle Casino Hotel Waterloo, Isle of Capri Lula, Lady Luck Casino Vicksburg and Mountaineer Casino, Racetrack and Resort or such other property or properties mutually acceptable to us and GLPI, provided that the aggregate value of such property, individually or collectively, is at least $246 million (the “Replacement Property”), to GLPI with a simultaneous leaseback to us of such Replacement Property. In connection with such Replacement Property sale, (i) we and GLPI will enter into an amendment to the Master Lease to revise the economic terms to include the Replacement Property, (ii) GLPI, or one of its affiliates, will assume the Lumière Loan and Tropicana St. Louis RE’s obligations under the Lumière Loan in consideration of the acquisition of the Replacement Property and our obligations under the Lumière Loan will be deemed to have been satisfied, (iii) the Lumière Real Property will be released from the lien placed on it in connection with the Lumière Loan (if such lien has not yet been released in accordance with the terms of the Lumière Loan) and (iv) in the event the value of the Replacement Property is greater than the our outstanding obligations under the Lumière Loan, GLPI will pay us the difference between the value of the Replacement Property and the amount of outstanding obligations under the Lumière Loan. If such Replacement Property transaction is not consummated prior to the maturity date of the Lumière Loan, other than as a result of certain loan documents, certain changes of controlfailures to perform by GLPI, then the amounts outstanding will be paid in full and the loss of certain classes of licenses to conduct gaming. If any event of default occurs, the lendersrent under the new credit facility would be entitledMaster Lease will automatically increase, subject to take various actions, including accelerating amounts outstanding thereundercertain escalations.

Master Lease

Our Master Lease is accounted for as a financing obligation and taking all actions permitted to be taken by a secured creditor. Astotaled $962.5 million as of March 31, 2018,2019.  See Note 10 to our Consolidated Financial Statements for additional information about our Master Lease and related matters.

Debt Covenant Compliance

As of March 31, 2019, we were in compliance with all of the covenants under the new credit facility.7% Senior Notes due 2023, 6% Senior Notes due 2025, 6% Senior Notes due 2026, the Credit Facility, the Master Lease and the Lumière Loan.

Contractual Obligations

There have been no material changes for the three months ended March 31, 20182019 to our contractual obligations as disclosed in our Annual Report on Form 10‑K for the year ended December 31, 2017.2018.


Other Liquidity Matters

We are faced with certain contingencies involving litigation and environmental remediation and compliance. These commitments and contingencies are discussed in “Part II, Item 1. Legal Proceedings” and Note 1011 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, 20172018 and “Part II, Item IA. Risk Factors” which is included in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.2019.


Critical Accounting Policies

Our critical accounting policies disclosures are included in our Annual Report on Form 10‑K for the year ended December 31, 2017.2018. Except as described in footnotesNote 2 and 3 to the accompanying condensed notes of these consolidated financial statements, we believe there have been no material changes since December 31, 2017.2018. 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 aredo not party tocurrently have any off‑balance sheet arrangements.

Cautionary Statement Regarding Forward‑Looking Information

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

projections of future results of operations or financial condition;

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

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

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

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

expectations regarding availability of capital resources;

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

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

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

the impact of regulation on our business and our ability to receive and maintain necessary approvals for our existing properties and future projects.projects and operation of online sportsbook, poker and gaming


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

our substantial indebtedness and significant financial commitments, including our obligations under the Master Lease, could adversely affect our results of operations and our ability to service such obligations;obligations, react to changes in our markets and pursue development and acquisition opportunities;

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

risks relating to payment of a significant portion of our cash flow as debt service and rent under the Master Lease;

financial, operational, regulatory or other potential challenges that may arise as a result of leasing of a number of our properties from a single lessor;

our facilities operate in very competitive environments and we face increasing competition;competition including through legalization of online betting and gaming;

uncertainty regarding legalization of betting and online gaming in the jurisdictions in which we operate and conditions applicable to obtaining the licenses required to enable our betting and online gaming partners to conduct betting and gaming activities;

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

future maintenance, development or expansion projects will be subject to significant development and construction risks;

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

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

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

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

changes in interest rates and capital and credit markets;

our ability to comply with certain covenants in our debt documents;documents and the Master Lease;

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

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

our ability to attract and retain customers;

weather or road conditions limiting access to our properties;

the effect of war, terrorist activity, acts of violence, 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, 2017.

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

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

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

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

our ability to obtain debt financing on the terms expected, or at all, and timely receive proceeds from the sale of Presque Isle Downs and Vicksburg to fund the acquisitions;

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


the ability to retain key employees of the acquired companies;

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

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

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

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


ITEM 3.

QUANTITATIVE AND QUALITATIVEQUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. We are exposed to changes in interest rates primarily from variable rate long‑term debt arrangements. At March 31, 2018,2019, interest on borrowings under our New Credit Facility was subject to fluctuation based on changes in short-term interest rates.

As of March 31, 2018,2019, our long‑term variable‑rate borrowings totaled $956.8 million under the New Term Loan and represented$40.0 under the Revolving Credit Facility, representing approximately 43%32% of our long‑term debt compared to 37%43% of our long‑term debt as of March 31, 2017.2018. During the three months ended March 31, 2018,2019, the weighted average interest rates on our variable and fixed rate debt were 3.9%4.86% and 6.3%6.54%, respectively.

The Company evaluates its exposure to market risk by monitoring interest rates in the marketplace and has, on occasion, utilized derivative financial instruments to help manage this risk. The Company does not utilize derivative financial instruments for trading purposes. There were no material quantitative changes in our market risk exposure, or how such risks are managed, for the three months ended March 31, 2018.2019.

ITEM 4.

CONTROLS AND PROCEDURES.

 

(a)

Evaluation of Disclosure Controls and Procedures

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


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

 

(b)

Changes in Internal Controls

Except 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,August 7, 2018 we completed the acquisition of Isle.Elgin and on October 1, 2018 we completed the acquisition of Tropicana. See Part I, Item 1, Condensed Notes to Unaudited Consolidated Financial Statements, Note 3: Isle Acquisition and Final4: Acquisitions, Preliminary Purchase Price Accounting and Pro Forma Information, for a discussion of the acquisitionacquisitions and related financial data. We areThe Company is in the process of integrating IsleElgin and Tropicana into 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,Elgin and Tropicana acquisitions, 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.

During the quarter ended March 31, 2019, we implemented controls to ensure we adequately evaluated our contracts and properly assessed the impact of the new lease accounting standard on our financial statements to facilitate adoption of the standard on January 1, 2019. We have also integrated our lease administration software with our processes, systems and controls, to support our accounting for leases.


PART II

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

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

Legal matters are discussed in greater detail in “Part I, Item 3. Legal Proceedings” and Note 15 to our Consolidated Financial statements included in our Annual Report on Form 10‑K for the year ended December 31, 2017.2018.

ITEM 1A.

RISK FACTORS

A description of our risk factors can be found in “Part I, Item 1A. Risk Factors” included in our Annual Report on Form 10‑K for the year ended December 31, 2017.2018. There have been no material changes to those risk factors during the three months ended March 31, 2018, except for the following additional risk factors related to certain acquisitions and dispositions.

Factors Relating to the Acquisitions and Dispositions

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

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

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

2019.


Delay or failure to complete the Acquisitions or Dispositions would prevent the Company from realizing the anticipated benefits of the transactions.

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

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

Completion of each of the Acquisitions and Dispositions is conditioned upon the receipt of certain governmental approvals, including, without limitation, antitrust and gaming regulatory approvals. There can be no assurance that these approvals will be obtained and that the other conditions to completing the Acquisitions and Dispositions will be satisfied in a timely fashion, or at all. In addition, the governmental authorities from which the regulatory approvals are required may impose conditions on the completion of the transactions or require changes to the terms of the agreements governing the transactions. Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying or impeding consummation of the Acquisitions and Dispositions or of imposing additional costs or limitations on us following completion of the transactions, any of which might have an adverse effect on us.  

In addition, if we fail to obtain required regulatory approvals for the Tropicana Acquisition, we may be required to pay a reverse termination fee of $92.5 million and could be liable for additional damages. If we fail to obtain required regulatory approvals for the Elgin Acquisition, we may lose our $15 million deposit. Further, we have incurred and will continue to incur significant costs, such as legal, accounting, and similar costs, relating to the Acquisitions. We will be required to pay such costs whether or not the Acquisitions are consummated.

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

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

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

We intend to fund the consideration payable in the Elgin Acquisition using cash from the Dispositions, cash from ongoing operations and borrowings under our revolving credit facility. We may be subject to a claim for damages or specific performance if we are unable to obtain the necessary funds to consummate the acquisition, including as a result of a failure to consummate the Dispositions.  

The pending Acquisitions and Dispositions may be disruptive to our business.

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

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


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

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

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

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

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

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

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

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

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


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

We expect that we will have approximately $2.8 billion of debt and an additional $110 million of other annual obligations relating to the Master Lease following the completion of the Acquisitions and Dispositions. In addition, we expect that we will have the ability to incur additional debt under our revolving credit facility which we expect will be increased from $300 million to $500 million effective at the time of the consummation of the Tropicana Acquisition. We may be required to incur additional indebtedness to finance the consideration payable under the Acquisitions and to pay costs associated with the development of a mixed-use entertainment and hospitality destination expected to be located on unused land adjacent to the Pompano casino and racetrack. In particular, we will be required to incur additional debt to consummate the Elgin Acquisition, if we are not able to consummate the Dispositions prior to the consummation of such Acquisition. As a result of the increased levels of outstanding indebtedness following the Acquisitions and rent payments under the Master Lease, future interest expense, rent and debt service obligations will be significantly higher than historic interest expense.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.

MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5.

OTHER INFORMATION.

None.



ITEM 6.

EXHIBITS.

 

Exhibit

Number

 

Description of Exhibit

 

Method of Filing

 

 

 

 

 

 

 

 

 

 

  31.110.1*

 

CertificationExecutive Employment Agreement, dated as of Gary L. Carano pursuant to Rule 13a‑14aFebruary 1, 2019, by and Rule 15d‑14(a)between Eldorado Resorts, Inc. and Bret Yunker.

Previously filed on Form 8-K filed on February 5, 2019.

  10.2

Agreement dated April 9, 2019 by and between Mountaineer Park, Inc. and Mountaineer Park Horsemen’s Benevolent and Protective Association, Inc.

 

Filed herewith.

 

 

 

 

 

  31.231.1

 

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

 

Filed herewith.

 

 

 

 

 

  31.2

Certification of Bret Yunker pursuant to Rule 13a‑14a and Rule 15d‑14(a)

Filed herewith.

32.1

 

Certification of Gary L. CaranoThomas R. Reeg in accordance with 18 U.S.C. Section 1350

 

Filed herewith.

 

 

 

 

 

  32.2

 

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

 

Filed herewith.

 

 

 

 

 

101.1

 

XBRL Instance Document

 

Filed herewith.

 

 

 

 

 

101.2

 

XBRL Taxonomy Extension Schema Document

 

Filed herewith.

 

 

 

 

 

101.3

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

Filed herewith.

 

 

 

 

 

101.4

 

XBRL Taxonomy Extension Definition Linkbase Document

 

Filed herewith.

 

 

 

 

 

101.5

 

XBRL Taxonomy Extension Label Linkbase Document

 

Filed herewith.

 

 

 

 

 

101.6

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

Filed herewith.

 

*

Management contract or compensatory plan or arrangement in which one or more executive officers or directors participates.

 


SIGNATURES

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

 

 

 

ELDORADO RESORTS, INC.

 

 

 

Date: May 8, 2018

/s/ Gary L. Carano

Gary L. Carano

Chief Executive Officer and Chairman of the Board

Date: May 8, 20187, 2019

 

/s/ Thomas R. Reeg

 

 

Thomas R. Reeg

 

 

President and Chief FinancialExecutive Officer (Principal Executive Officer)

 

 

(Principal

Date: May 7, 2019

/s/ Bret Yunker

Bret Yunker

Chief Financial Officer (Principal Financial Officer)

 

59