Caesars Entertainment (CZR) 10-Q 2018 Q2 Quarterly report

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 June 30, 2018

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)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, 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  ☒

The number of shares of the Registrant’s Common Stock, $0.00001 par value per share, outstanding as of August 3, 2018 was 77,337,667.

ELDORADO RESORTS, INC.

QUARTERLY REPORT FOR THE THREE AND SIX MONTHS ENDED

June 30, 2018

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION		2
Item 1.	FINANCIAL STATEMENTS	2
	Consolidated Balance Sheets at June 30, 2018 (unaudited) and December 31, 2017	2
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)	3
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 (unaudited)	5
	Condensed Notes to Unaudited Consolidated Financial Statements	6
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	33
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	50
Item 4.	CONTROLS AND PROCEDURES	51
PART II. OTHER INFORMATION		52
Item 1.	LEGAL PROCEEDINGS	52
Item 1A.	RISK FACTORS	52
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	55
Item 3.	DEFAULTS UPON SENIOR SECURITIES	55
Item 4.	MINE SAFETY DISCLOSURES	55
Item 5.	OTHER INFORMATION	55
Item 6.	EXHIBITS	56
SIGNATURES		57

1

PART I-FINANCIAL INFORMATION

Item 1.  Financial Statements.

ELDORADO RESORTS, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

	June 30,			December 31,
	2018			2017
		(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$		202,016	$	134,596
Restricted cash			4,683		3,267
Marketable securities			17,066		17,631
Accounts receivable, net			34,808		45,797
Due from affiliates			125		243
Inventories			14,847		16,870
Prepaid income taxes			187		4,805
Prepaid expenses and other			30,469		27,823
Assets held for sale			201,202		—
Total current assets			505,403		251,032
Property and equipment, net			1,400,088		1,502,817
Gaming licenses and other intangibles, net			915,936		996,816
Goodwill			719,254		747,106
Non-operating real property			14,030		18,069
Other assets, net			45,035		30,632
Total assets	$		3,599,746	$	3,546,472
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$		486	$	615
Accounts payable			28,949		34,778
Due to affiliates			20		—
Accrued property, gaming and other taxes			35,133		43,212
Accrued payroll and related			50,936		53,330
Accrued interest			26,788		25,607
Income taxes payable			222		171
Accrued other liabilities			69,341		66,037
Liabilities related to assets held for sale			5,817		—
Total current liabilities			217,692		223,750
Long-term debt, less current portion			2,190,749		2,189,578
Deferred income taxes			176,607		162,967
Other long-term liabilities			17,975		28,579
Total liabilities			2,603,023		2,604,874
Commitments and contingencies (Note 11)
STOCKHOLDERS' EQUITY:
Common stock, 200,000,000 and 100,000,000 shares authorized, 77,326,124   and 76,825,966 issued and outstanding, par value $0.00001 as of June 30, 2018   and December 31, 2017, respectively			1		—
Paid-in capital			744,020		746,547
Retained earnings			252,623		194,972
Accumulated other comprehensive income			79		79
Total stockholders’ equity			996,723		941,598
Total liabilities and stockholders’ equity	$		3,599,746	$	3,546,472

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

2

ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share data)

(unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
REVENUES:
Casino	$	343,675		$	275,593		$	683,133		$	417,147
Pari-mutuel commissions		5,045			4,112			9,115			4,748
Food and beverage		54,293			49,709			106,491			82,130
Hotel		38,926			34,278			69,667			53,583
Other		14,863			11,934			28,588			20,411
Net revenues		456,802			375,626			896,994			578,019
EXPENSES:
Casino		165,353			139,707			331,203			219,688
Pari-mutuel commissions		4,592			4,030			8,293			5,237
Food and beverage		44,770			42,803			89,546			68,821
Hotel		13,695			12,270			26,201			21,349
Other		8,310			6,901			15,715			13,070
Marketing and promotions		21,832			21,531			43,133			31,660
General and administrative		73,745			60,887			147,947			92,687
Corporate		12,232			7,442			23,801			14,016
Impairment charges		—			—			9,815			—
Depreciation and amortization		31,910			24,909			63,444			40,513
Total operating expenses		376,439			320,480			759,098			507,041
Gain (loss) on sale or disposal of property and equipment		423			(89	)		(283	)		(57	)
Transaction expenses		(3,404	)		(85,464	)		(5,952	)		(87,078	)
Equity in income (loss) of unconsolidated affiliates		32			(60	)		(53	)		(282	)
Operating income (loss)		77,414			(30,467	)		131,608			(16,439	)
OTHER INCOME (EXPENSE):
Interest expense, net		(31,405	)		(27,527	)		(62,494	)		(40,197	)
Loss on early retirement of debt, net		—			(27,317	)		(162	)		(27,317	)
Total other expense		(31,405	)		(54,844	)		(62,656	)		(67,514	)
Net income (loss) before income taxes		46,009			(85,311	)		68,952			(83,953	)
(Provision) benefit for income taxes		(9,213	)		39,121			(11,301	)		38,708
Net income (loss)	$	36,796		$	(46,190	)	$	57,651		$	(45,245	)
Net income (loss) per share of common stock:
Basic	$	0.48		$	(0.68	)	$	0.74		$	(0.79	)
Diluted	$	0.47		$	(0.68	)	$	0.74		$	(0.79	)
Weighted average basic shares outstanding		77,458,584			67,453,095			77,406,447			57,405,834
Weighted average diluted shares outstanding		78,258,629			67,453,095			78,169,629			57,405,834

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

3

ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)

(unaudited)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2018		2017			2018		2017
Net income (loss)	$	36,796	$	(46,190	)	$	57,651	$	(45,245	)
Other comprehensive income, net of tax:
Other comprehensive income		—		—			—		—
Comprehensive income (loss), net of tax	$	36,796	$	(46,190	)	$	57,651	$	(45,245	)

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

4

ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

	Six Months Ended
	June 30,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	57,651		$	(45,245	)
Adjustments to reconcile net income (loss) to net cash provided by operating    activities:
Depreciation and amortization		63,444			40,513
Amortization of deferred financing costs, discount and debt premium		2,533			3,034
Loss on early retirement of debt		162			27,317
Stock compensation expense		7,151			3,062
Impairment charges		9,815			—
Provision (benefit) for deferred income taxes		10,461			(38,072	)
Other		1,212			1,132
Change in operating assets and liabilities:
Sale of trading securities		565			295
Accounts receivable		7,507			4,037
Inventory		198			(630	)
Prepaid expenses and other assets		(1,722	)		(4,415	)
Accounts payable and accrued liabilities		(10,473	)		12,015
Net cash provided by operating activities		148,504			3,043
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net		(55,181	)		(29,824	)
Proceeds from sale of property and equipment		840			—
Net cash used in business combinations		—			(1,313,051	)
Escrow deposit		(15,000	)		—
Net cash used in investing activities		(69,341	)		(1,342,875	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Term Loan		—			1,450,000
Proceeds from issuance of 6% Senior Notes		—			375,000
Borrowings under Revolving Credit Facility		—			189,953
Payments under Term Loan		—			(422,250	)
Payments under Revolving Credit Facility		—			(128,953	)
Debt issuance costs		(305	)		(44,992	)
Taxes paid related to net share settlement of equity awards		(9,677	)		(8,993	)
Proceeds from exercise of stock options		—			2,898
Payments on other long-term payables		(344	)		(210	)
Net cash (used in) provided by financing activities		(10,326	)		1,412,453
Increase in cash, cash equivalents and restricted cash		68,837			72,621
Cash, cash equivalents and restricted cash, beginning of period		147,749			63,444
Cash, cash equivalents and restricted cash, end of period	$	216,586		$	136,065
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO    AMOUNTS REPORTED WITHIN THE CONDENSED CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents	$	202,016		$	103,624
Restricted cash		4,683			22,566
Restricted cash included in other noncurrent assets		9,887			9,875
Total cash, cash equivalents and restricted cash	$	216,586		$	136,065
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	$	58,694		$	30,742
Income taxes (refunded) paid		(3,829	)		589
NON-CASH FINANCING ACTIVITIES:
Net change in payables for capital expenditures		(5,018	)		(1,156	)

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

5

ELDORADO RESORTS, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

Organization

The accompanying unaudited consolidated financial statements include the accounts of Eldorado Resorts, Inc. (“ERI” or the “Company”), a Nevada corporation formed in September 2013, and its consolidated subsidiaries. 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”).

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. (“Isle” or “Isle of Capri”). As a result of the Isle Merger, Isle became a wholly-owned subsidiary of ERI.

ERI owns and operates 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 1,128 slot machines and 36 table games;

• Silver Legacy Resort Casino (“Silver Legacy”)—A 1,685-room themed hotel and casino connected via an enclosed skywalk to Eldorado Reno and Circus Reno that includes 1,208 slot machines, 58 table games and a 13 table poker room;

• Circus Circus Reno (“Circus Reno”)—A 1,571-room hotel-casino and entertainment complex connected via an enclosed skywalk to Eldorado Reno and Silver Legacy that includes 706 slot machines and 24 table games;

• Eldorado Resort Casino Shreveport (“Eldorado Shreveport”)—A 403-room, all suite art deco-style hotel and tri-level riverboat dockside casino situated on the Red River in Shreveport, Louisiana that includes 1,388 slot machines, 52 table games and an eight table poker room;

• Mountaineer Casino, Racetrack & Resort (“Mountaineer”)—A 357-room hotel, casino, entertainment and live thoroughbred horse racing facility located on the Ohio River at the northern tip of West Virginia’s northwestern panhandle that includes 1,487 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 1,596 slot machines, 32 table games and a seven table poker room located in Erie, Pennsylvania;

• Eldorado Gaming Scioto Downs (“Scioto Downs”)—A modern “racino” offering 2,237 video lottery terminals (“VLTs”), harness racing and a 118-room third party hotel connected to Scioto Downs located 15 minutes from downtown Columbus, Ohio;

• Isle Casino Hotel—Black Hawk (“Isle Black Hawk”)—A land-based casino on an approximately 10-acre site in Black Hawk, Colorado that includes 1,005 slot machines, 30 table games, a nine table poker room and a 238-room hotel;

• Lady Luck Casino—Black Hawk (“Lady Luck Black Hawk”)—A land-based casino across the intersection from Isle Casino Hotel in Black Hawk Colorado, that includes 472 slot machines, eleven table games and a 164-room hotel with a parking structure connecting Isle Casino Hotel-Black Hawk and Lady Luck Casino-Black Hawk;

• Isle Casino Racing Pompano Park (“Pompano”)—A casino and harness racing track on an approximately 223-acre owned site in Pompano Beach, Florida that includes 1,461 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 Bettendorf (“Bettendorf”)—A land-based single-level casino located off Interstate 74 in Bettendorf, Iowa that includes 974 slot machines and 20 table games with two hotel towers with 509 hotel rooms;

6

• Isle Casino Waterloo (“Waterloo”)—A single-level land-based casino in Waterloo, Iowa that includes 936 slot machines, 25 table games, and a 194-room hotel;

• Isle of Capri Casino Hotel Lake Charles (“Lake Charles”)—A gaming vessel on an approximately 19 acre site in Lake Charles, Louisiana, with 1,173 slot machines, 45 table games, including 13 poker tables, and two hotels offering 493 rooms;

• Isle of Capri Casino Lula (“Lula”)—Two dockside casinos in Lula, Mississippi with 871 slot machines and 19 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 603 slot machines, eight 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 885 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 870 slot machines and 24 table games, including four poker tables;

• Lady Luck Casino Caruthersville (“Caruthersville”)—A riverboat casino located along the Mississippi River in Caruthersville, Missouri that includes 512 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 969 slot machines and 13 table games; and

• Lady Luck Casino Nemacolin (“Nemacolin”)—A casino property located on the 2,000-acre Nemacolin Woodlands Resort in Western Pennsylvania that includes 600 slot machines and 27 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 information included for periods prior to our acquisition of Isle are those of ERI and its subsidiaries. The presentation of information herein for periods prior to our acquisition of Isle and after our acquisition of Isle are not fully comparable because the results of operations for Isle are not included for periods prior to our acquisition of Isle.

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.

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 use 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.

7

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 November 2016, ASU No. 2016-18 was issued 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 equivalents 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 on 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. Adoptions of this guidance had no other impact on the Consolidated Financial Statements or disclosures.

Certain amounts have been retrospectively reclassified for the three and six months ended June 30, 2017 to conform to the current period presentation and reflect the change in the Company’s Consolidated Statements of Cash Flows required with the adoption of ASU No. 2016-15.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations – Clarifying the Definition of a Business.” This amendment 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, with early adoption allowed as follows: (1) transactions for which acquisition date occurs 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 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. We adopted this accounting standard during the first quarter of 2018, which did not have an impact on our consolidated financial statements, and will result in future acquisitions which do not involve substantive processes being accounted for as asset acquisitions.

In February 2016, the FASB issued ASU No. 2016-02 which addresses the recognition and measurement of leases. Under the new guidance, for all leases (with the exception of short-term leases), at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Further, the new lease guidance simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and liabilities, which no longer provides a source for off balance sheet financing. The effective date for this update is for the annual and interim periods beginning after December 15, 2018 with early adoption permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements.

Currently, we do not have any material capital leases nor any material operating leases where we are the lessor. Our operating leases, primarily relating to certain ground leases and slot machines or VLTs, will be recorded on the balance sheet as an ROU asset with a corresponding lease liability, which will be amortized using the effective interest rate method as payments are made. The ROU asset will be depreciated on a straight-line basis and recognized as lease expense. The qualitative and quantitative effects of adoption of ASU 2016-02 are still being analyzed, and we are in the process of evaluating the full effect the new guidance will have on our consolidated financial statements.

Note 2. Revenue Recognition

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

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. Such fees are based upon a predetermined percentage of handle as contracted with the other race tracks.

8

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 estimated 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 $11.0 million and $11.8 million at June 30, 2018 and December 31, 2017, respectively, inclusive of liabilities associated with assets held for sale. 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 is 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 discretionary coupons and other discretionary complimentaries to customers outside of the 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 transferred to the customer. 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 $48.9 million and $43.2 million for the three months ended June 30, 2018 and 2017, respectively, and $96.1 million and $66.9 million for the six months ended June 30, 2018 and 2017, respectively.

9

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 June 30, 2017
	As Reported			ASC 606 Adjustments			Other Reclassifications(1)		As Adjusted
Gross revenues	$	389,237		$	(31,215	)	$	17,604	$	375,626
Promotional allowances		(34,057	)		33,226			831		—
Net revenues	$	355,180		$	2,011		$	18,435	$	375,626
Operating (loss) income	$	(32,116	)	$	110		$	1,539	$	(30,467	)
Net (loss) income	$	(46,328	)	$	138		$	—	$	(46,190	)
	Six Months Ended June 30, 2017
	As Reported			ASC 606 Adjustments			Other Reclassifications(1)		As Adjusted
Gross revenues	$	608,783		$	(48,235	)	$	17,471	$	578,019
Promotional allowances		(52,678	)		51,713			965		—
Net revenues	$	556,105		$	3,478		$	18,436	$	578,019
Operating (loss) income	$	(17,967	)	$	(11	)	$	1,539	$	(16,439	)
Net (loss) income	$	(45,307	)	$	62		$	—	$	(45,245	)

(1) Other reclassifications are comprised of the reversal of our Lake Charles property from discontinued operations and other reclassifications to conform to current period presentations.

10

Additionally, adoption of the new standard resulted in a net loss per share adjustment from the as reported $0.69 per share to $0.68 per share for the three months ended June 30, 2017. There was no adjustment for the net loss per share for the six months ended June 30, 2017.

The Company’s consolidated statement of operations presents net revenue disaggregated by type or nature of the good or service (i.e., casino, pari-mutuel, food and beverage, hotel and other). A summary of net revenues disaggregated by type of revenue and reportable segment is presented below (amounts in thousands). Refer to Note 13 for a discussion of the Company’s reportable segments.

	Three Months Ended June 30, 2018
	West		Midwest		South		East		Corporate and Other		Total
Casino	$	57,696	$	87,448	$	88,994	$	109,537	$	—	$	343,675
Pari-mutuel commissions		—		—		2,590		2,455		—		5,045
Food and beverage		25,812		6,744		12,583		9,154		—		54,293
Hotel		26,222		4,418		6,301		1,985		—		38,926
Other		8,150		1,997		1,774		2,830		112		14,863
Net revenues	$	117,880	$	100,607	$	112,242	$	125,961	$	112	$	456,802
	Three Months Ended June 30, 2017
	West		Midwest		South		East		Corporate and Other		Total
Casino	$	45,229	$	57,987	$	69,001	$	103,376	$	—	$	275,593
Pari-mutuel commissions		—		—		1,504		2,608		—		4,112
Food and beverage		25,002		5,035		10,828		8,844		—		49,709
Hotel		23,207		3,454		5,575		2,042		—		34,278
Other		6,314		1,165		1,551		2,768		136		11,934
Net revenues	$	99,752	$	67,641	$	88,459	$	119,638	$	136	$	375,626
	Six Months Ended June 30, 2018
	West		Midwest		South		East		Corporate and Other		Total
Casino	$	107,430	$	175,807	$	186,503	$	213,393	$	—	$	683,133
Pari-mutuel commissions		—		—		5,999		3,116		—		9,115
Food and beverage		49,023		13,660		26,444		17,364		—		106,491
Hotel		45,652		8,056		12,292		3,667		—		69,667
Other		15,354		3,879		3,804		5,312		239		28,588
Net revenues	$	217,459	$	201,402	$	235,042	$	242,852	$	239	$	896,994
	Six Months Ended June 30, 2017
	West		Midwest		South		East		Corporate and Other		Total
Casino	$	69,062	$	57,987	$	92,169	$	197,929	$	—	$	417,147
Pari-mutuel commissions		—		—		1,505		3,243		—		4,748
Food and beverage		44,494		5,035		16,561		16,040		—		82,130
Hotel		37,858		3,454		8,500		3,771		—		53,583
Other		11,826		1,165		2,284		4,943		193		20,411
Net revenues	$	163,240	$	67,641	$	121,019	$	225,926	$	193	$	578,019

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Note 3. Isle Acquisition and Final 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 in the Isle Acquisition was determined with reference to the 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):

Current and other assets, net	$	135,925
Property and equipment		908,816
Goodwill		709,087
Intangible assets (i)		517,470
Other noncurrent assets		15,082
Total assets		2,286,380
Current liabilities		(144,306	)
Deferred income taxes (ii)		(189,952	)
Other noncurrent liabilities		(17,377	)
Total liabilities		(351,635	)
Net assets acquired	$	1,934,745

(i) Intangible assets consist of gaming licenses, trade names, and player relationships.

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

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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 Isle Acquisition make use of Level 1 and Level 3 inputs including quoted prices in active markets and discounted cash flows.

Trade receivables and payables, inventory and other current and noncurrent assets and liabilities were valued at the existing carrying values as they represented the estimated fair value of those items at the Isle 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. With respect to personal property components of the assets, personal property assets with an active and identifiable secondary market such as riverboats, gaming equipment, computer equipment and vehicles were valued using the 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 fair value of the gaming licenses was determined using the excess earnings or replacement cost methodology based on the respective states’ legislation. The excess earnings methodology, which is an income approach methodology that allocates the projected cash flows of the business to the gaming license intangible assets less charges for the use of other identifiable assets of Isle including working capital, fixed assets and other intangible assets. This methodology was considered appropriate as the gaming licenses are the primary asset of Isle and the licenses are linked to each respective facility. Under the respective state’s gaming legislation, the property specific licenses can only be acquired if a theoretical buyer were to acquire each existing facility. The existing licenses could not be acquired and used for a different facility. The properties’ estimated future cash flows were the primary assumption in the respective valuations. Cash flow estimates included net gaming revenue, gaming operating expenses, general and administrative expenses, and tax expense. The replacement cost methodology is a cost approach methodology based on replacement or reproduction cost of the gaming license as an indicator of fair value. The acquired Isle properties currently have licenses in Pennsylvania, Iowa, Missouri, Mississippi, Florida and Colorado. 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’s historical experience has not indicated, nor does ERI expect, any limitations regarding its ability to continue to renew each license. No other competitive, contractual, or economic factor limits the useful lives of these assets. Accordingly, ERI has concluded that the useful lives of these licenses are indefinite.

Trademarks are valued using the relief from royalty method, which presumes that without ownership of such trademarks, ERI would have to make a stream of payments to a brand or franchise owner in return for the right to use their name. By virtue of this asset, ERI avoids any such payments and record the related intangible value of ERI’s ownership of the brand name. The primary assumptions in the valuation 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. Management has assigned trade names an indefinite useful life after considering, among other things, the expected use of the asset, the expected useful life of other related asset or asset group, any legal, regulatory, or contractual provisions that may limit the useful life, ERI’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, ERI determined that no legal, regulatory, contractual, competitive, economic or other factors limit the useful lives of these intangible assets.

13

Isle Operating Results and Transaction Expenses

For the six months ended June 30, 2018, Isle generated revenue of $454.8 million and net income of $66.7 million.

Transaction expenses attributed to the Isle Acquisition are reported on the accompanying statements of operations related to legal, accounting, financial advisory services, severance, stock awards and other costs and totaled $0.2 million and $1.1 million for the three and six months ended June 30, 2018, respectively, and $85.5 million and $87.1 million for the three and six months ended June 30, 2017, respectively.

Unaudited Pro Forma Information

The following unaudited pro forma information presents the results of operations of the Company for the three and six months ended June 30, 2017, as if the Isle Acquisition had occurred on January 1, 2017 (in thousands).

	Three Months Ended			Six Months Ended
	June 30, 2017		June 30, 2017
Net operating revenues	$	458,106	$		906,588
Net income (loss)		11,628			(15,176	)

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 Isle prior to the Isle Acquisition with adjustments directly attributable to the Isle Acquisition.

Note 4. 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 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. In relation to the dispositions, an impairment charge was recorded related to Vicksburg during the six months ended June 30, 2018 (see Note 6).

The 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. On May 7, 2018, the Company and CDI each received a Request for Additional Information and Documentary Materials, often referred to as a “Second Request,” from the Federal Trade Commission in connection with its review of the Vicksburg acquisition.

On July 6, 2018, in consideration of the time and expense needed to reply to the Second Request, the Company and CDI entered into a termination agreement and release, mutually agreeing to terminate the asset purchase agreement with respect to Vicksburg (the “Vicksburg Termination Agreement”). Concurrently with the termination of the Vicksburg agreement, the Company agreed to enter into an agreement pursuant to which CDI will acquire and assume the rights and obligations to operate Nemacolin. In connection with the Vicksburg Termination Agreement, CDI has agreed to pay the Company a $5.0 million termination fee, subject to the parties’ execution of a definitive agreement with respect to the Nemacolin transaction.

Both sales are expected to close in the fourth quarter of 2018, subject to satisfaction of closing conditions, including receipt of Pennsylvania regulatory approvals, termination of the waiting period under the Hart-Scott-Rodino Act and, in the case of Presque Isle Downs, the execution of the definitive agreement with respect to the Nemacolin transaction.

The dispositions of Vicksburg and Presque Isle Downs met the requirements for presentation as assets held for sale under generally accepted accounting principles as of June 30, 2018.

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The assets and liabilities held for sale were as follows (in thousands):

	June 30, 2018
	Vicksburg		Presque Isle Downs		Total
Assets:
Accounts receivable, net	$	100	$	2,529	$	2,629
Inventories		252		1,574		1,826
Prepaid expenses and other		275		992		1,267
Property and equipment, net		35,852		69,558		105,410
Goodwill		8,806		3,122		11,928
Other intangibles, net		2,720		75,422		78,142
Assets held for sale	$	48,005	$	153,197	$	201,202
Liabilities:
Accounts payable	$	175	$	756	$	931
Accrued payroll and related		300		636		936
Accrued property and other taxes		—		78		78
Accrued other liabilities		379		3,493		3,872
Liabilities related to assets held for sale	$	854	$	4,963	$	5,817

Note 5. Stock-Based Compensation

Common Stock and Stock‑Based Awards

The Company has authorized common stock of 200,000,000 shares, par value $0.00001 per share. In June 2018 the Company amended its certificate of incorporation to increase the total number of authorized shares of common stock from 100,000,000 shares to 200,000,000 shares.

Total stock-based compensation expense in the accompanying consolidated statements of operations totaled $3.5 million and $1.3 million during the three months ended June 30, 2018 and 2017, respectively, and $7.2 million and $3.1 million during the six months ended June 30, 2018 and 2017, respectively.

A summary of the RSU and RSA activity for the six months ended June 30, 2018 is presented in the following table:

	Restricted Stock Units						Restricted Stock Awards
	Units				Weighted- Average Grant Date Fair Value		Units				Weighted- Average Grant Date Fair Value
					(in millions)						(in millions)
Unvested outstanding as of December 31, 2017		1,579,499		$		12.25		10,809		$		19.13
Granted		316,431				32.91		—				—
Vested		(783,672	)			8.05		(10,809	)			19.13
Canceled		(9,885	)			19.13		—				—
Unvested outstanding as of June 30, 2018		1,102,373		$		21.11		—		$		—

A summary of the ERI Stock Option activity for the six months ended June 30, 2018 is presented in the following table:

				Weighted-
				Average
				Exercise
	Options			Price
Outstanding as of December 31, 2017		271,852		$	9.63
Expired		(15,776	)		10.89
Exercised		(103,120	)		9.09
Outstanding as of June 30, 2018		152,956		$	9.63

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136,505 options were exercisable as of June 30, 2018.

Note 6. Other and Intangible Assets, net

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

	June 30,			December 31,
	2018			2017			Useful Life
	(unaudited)
Goodwill	$	719,254		$	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		(11,581	)		(10,838	)
Total gaming licenses and other intangible assets	$	915,936		$	996,816
Non-operating real property	$	14,030		$	18,069
Unamortized debt issuance costs - Revolving    Credit Facility	$	7,613		$	8,616
Restricted cash		9,887			9,886
Other		27,535			12,130
Total other assets, net	$	45,035		$	30,632

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 six months ended June 30, 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 related to trade names and loyalty programs for the three months ended June 30, 2018 and 2017 totaled $1.2 million and $1.1 million, respectively, and $2.7 million and $1.6 million for the six months ended June 30, 2018 and 2017, respectively, which is included in depreciation and amortization expense in the consolidated statements of operations. Such amortization expense is expected to be $2.3 million for the remainder of 2018 and $4.7 million and $1.6 million for the years ended December 31, 2019 and 2020, respectively.

Note 7. Income Taxes

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

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Through the quarter ended June 30, 2018, the Company recognized no adjustments to the provisional amounts recorded at December 31, 2017. Additionally, the Company has not completed its accounting for all of the tax effects of the Tax Act that became effective January 1, 2018, but has recognized provisional amounts in its income tax provision. The Company is awaiting further guidance from U.S. federal and state regulatory bodies with regards to the final accounting and reporting of these items in the several jurisdictions where the Company file tax returns. In all cases, the Company will continue to make and refine its calculations as additional analysis is completed. Its estimates may also be affected as the Company gains a more thorough understanding of the tax law.

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

For the three and six months ended June 30, 2018, the Company’s tax expense was $9.2 million and $11.3 million, respectively, and for the three and six months ended June 30, 2017, the Company’s tax benefit was $39.1 million and $38.7 million. For the three and six months ended June 30, 2018, the difference between the effective rate and the statutory rate is attributed primarily to state and local income taxes less excess tax benefits associated with stock compensation. For the three and six months ended June 30, 2017, the difference between the effective rate and the statutory rate is attributed primarily to non-deductible transaction costs incurred and changes in the effective state tax rate associated with the Isle Acquisition. As of June 30, 2018 and 2017, 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.

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.

The Company was notified by the Internal Revenue Service in October of 2016 that its federal tax return for the year ended December 31, 2014 had been selected for examination. In September 2017, the IRS informed the Company that they completed the examination of the tax return and made no changes.

Note 8. Long-Term Debt and Other Long-Term Liabilities

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

	June 30,			December 31,
	2018			2017
	(unaudited)
Term Loan	$	956,750		$	956,750
Less: Unamortized discount and debt issuance costs		(17,487	)		(18,748	)
Net		939,263			938,002
6% Senior Notes		875,000			875,000
Plus: Unamortized debt premium		25,068			26,605
Less: Unamortized debt issuance costs		(19,580	)		(20,716	)
Net		880,488			880,889
7% Senior Notes		375,000			375,000
Less: Unamortized discount and debt issuance costs		(6,620	)		(7,146	)
Net		368,380			367,854
Capital leases		617			917
Long-term notes payable		2,487			2,531
Less: Current portion		(486	)		(615	)
Total long-term debt	$	2,190,749		$	2,189,578

Amortization of the debt issuance costs and the discount and premium associated with our indebtedness totaled $1.2 million and $2.5 million for the three and six months ended June 30, 2018, respectively. Amortization of the debt issuance costs and the discount and premium associated with our indebtedness totaled $2.2 million and $3.0 million for the three and six months ended June 30, 2017, respectively. Amortization of debt issuance costs is computed using the effective interest method and is included in interest expense.

17

Scheduled maturities of long‑term debt are $375.0 million in 2023, $956.8 million in 2024, and $875.0 million in 2025.

Term Loan and Revolving Credit Facility

In April 2017, the Company entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto dated as of April 17, 2017 (the “Credit Facility”), consisting of a $1.45 billion term loan facility (the “Term Loan Facility” or “Term Loan”) and a $300.0 million revolving credit facility (the “Revolving Credit Facility”). The Company’s obligations under the Revolving Credit Facility will mature on April 17, 2022. The Company’s obligations under the Term Loan Facility will mature on April 17, 2024. The Company was required to make quarterly principal payments in an amount equal to $3.6 million on the 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. In addition, the Company is required to make mandatory payments of amounts outstanding under the Credit Facility with the proceeds of certain casualty events, debt issuances, and asset sales and, depending on its consolidated total leverage ratio, the Company may be required to apply a portion of its excess cash flow to repay amounts outstanding under the Credit Facility.

As of June 30, 2018, the Company had $956.8 million outstanding on the Term Loan. There were no borrowings outstanding under the Revolving Credit Facility as of June 30, 2018. The Company had $290.9 million of available borrowing capacity, after consideration of $9.1 million in outstanding letters of credit, under its Revolving Credit Facility as of June 30, 2018.

The interest rate per annum applicable to loans under the Revolving Credit Facility are, at our option, either LIBOR plus a margin ranging from 1.75% to 2.50% or a base rate plus a margin ranging from 0.75% to 1.50%, which margin is based on our total leverage ratio. The interest rate per annum applicable to the loans under the Term Loan Facility is, at our option, either LIBOR plus 2.25%, or a base rate plus 1.25%; provided, however, that in no event will LIBOR be less than zero or the base rate be less than 1.00% over the term of the Term Loan Facility or the Revolving Credit Facility. Additionally, the Company pays a commitment fee on the unused portion of the Revolving Credit Facility in the amount of 0.50% per annum. At June 30, 2018, the weighted average interest rate on the Term Loan was 4.1% based upon the weighted average interest rate of borrowings outstanding during the six months ended June 30, 2018.

We have obtained commitments to increase our revolving credit facility from $300 million to $500 million effective substantially concurrently with the consummation of the Tropicana Acquisition and extend the maturity date of our revolving credit facility to the fifth anniversary of the effective date of such increase.

On June 6, 2018, the Company executed an amendment that modified certain covenants in the Credit Facility to allow for considerations related to the acquisition of Tropicana.

Senior Notes

6% Senior Notes

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”) 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. 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 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 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.

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7% 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.

As of June 30, 2018 we were in compliance with all covenants under the Credit Facility, 6% Senior Notes, and 7% Senior Notes.

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. 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 June 30, 2018 and December 31, 2017, the Company recorded property and equipment, net of accumulated depreciation, of $4.1 million and $4.2 million, respectively, 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). 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 June 30, 2018 and December 31, 2017, the Company recorded property and equipment, net of accumulated depreciation, of $12.0 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 changes in property and equipment and in the liability were primarily due to the Company finalizing its purchase price accounting related to the Isle Acquisition as of March 31, 2018.  

Note 9. 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 June 30, 2018 and December 31, 2017 (amounts in thousands):

	June 30, 2018
Assets:	Level 1		Level 2		Total
Restricted cash and investments	$	10,753	$	3,817	$	14,570
Marketable securities		9,512		7,554		17,066
	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

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

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

Restricted Cash: 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), 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.

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

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

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):

	June 30, 2018				December 31, 2017
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial liabilities:
7% Senior Notes	$	368,380	$	393,750	$	367,854	$	400,800
6% Senior Notes		880,488		868,438		880,889		914,375
Term Loan		939,263		956,750		938,002		956,750
Other long-term debt		2,487		2,487		2,531		2,531
Capital leases		617		617		917		917

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Note 10. Earnings per Share

The following table illustrates the reconciliation of the numerators and denominators of the basic and diluted net income per share computations for the three and six months ended June 30, 2018 and 2017 (dollars in thousands, except per share amounts):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018		2017				2018		2017
	(unaudited)
Net income (loss) available to common stockholders	$	36,796	$		(46,190	)	$	57,651	$		(45,245	)
Shares outstanding:
Weighted average shares outstanding – basic		77,458,584			67,453,095			77,406,447			57,405,834
Effect of dilutive securities:
Stock options		131,148		N/A				142,027		N/A
RSUs		668,897		N/A				621,155		N/A
Weighted average shares outstanding – diluted (1)		78,258,629			67,453,095			78,169,629			57,405,834
Net income (loss) per common share attributable to common    stockholders – basic:	$	0.48	$		(0.68	)	$	0.74	$		(0.79	)
Net income (loss) per common share attributable to common    stockholders – diluted:	$	0.47	$		(0.68	)	$	0.74	$		(0.79	)

(1) Excluded from “Weighted average shares outstanding – diluted” are 78,435 and 64,617 stock options for the three and six months ended June 30, 2017, respectively, and 937,661 and 868,987 RSUs for the three and six months ended June 30, 2017, respectively.

Note 11. Commitments and Contingencies

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

Agreements with Horsemen and Pari-mutuel Clerks.  The Federal Interstate Horse Racing Act and the state racing laws in West Virginia, Ohio and Pennsylvania require that, in order to simulcast races, we have written agreements with the horse owners and trainers at those racetracks. In addition, in order to operate slot machines in West Virginia, we are required to enter into written agreements regarding the proceeds of the slot machines (a “proceeds agreement”) with a representative of a majority of the horse owners and trainers and with a representative of a majority of the pari‑mutuel clerks. In Pennsylvania and Ohio, we must have an agreement with the representative of the horse owners. We have the requisite agreements in place with the horsemen at Mountaineer until December 31, 2018. With respect to the Mountaineer pari‑mutuel clerks, we have a labor agreement in force until November 30, 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 has the requisite agreement 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 agreement in place with the Pennsylvania Horsemen’s Benevolent and Protective Association until May 1, 2021. With the exception of the respective Mountaineer, Presque Isle Downs and Scioto Downs horsemen’s agreements and the agreement between Mountaineer and the pari‑mutuel clerks’ union described above, each of the agreements referred to in this paragraph may be terminated upon written notice by either party.

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Note 12. Related Affiliates

The Company has a lease agreement with C.S. &Y. Associates (“CS&Y”) which is an entity partially owned by Recreational Enterprises, Inc. (“REI”), which is owned by members of the Carano family, including Gary L. Carano, and various trusts of which members of the Carano family are beneficiaries. In addition, each of Gary L. Carano and Thomas R. Reeg serve as members of the board of directors of REI. 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 three and six months ended June 30, 2018, the Company paid CS&Y $150,000 and $300,000, respectively. For the three and six months ended June 30, 2017, the Company paid CS&Y $90,000 and $215,000, respectively. No amounts were due to or due from CS&Y as of June 30, 2018 and December 31, 2017.

The Company holds a 42.1% variable interest in a partnership with other investors that developed a new 118-room Hampton Inn & Suites hotel at Scioto Downs that opened in March 2017. Pursuant to the terms of the partnership agreement, the Company contributed $1.0 million of cash and 2.4 acres of a leasehold immediately adjacent to The Brew Brothers microbrewery and restaurant at Scioto Downs. The partnership constructed the hotel at a cost of $16.0 million and other investor members operate the hotel. As of June 30, 2018, the Company’s receivable from the partnership totaled $125,000 and the Company’s payable to the partnership totaled $20,000. These amounts are reflected on the accompanying balance sheet under “due from affiliates” and “due to affiliates.”

The Company formed a joint venture in April 2018 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 our Pompano property. No amounts were due to or due from Cordish as of June 30, 2018.

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Note 13. 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, 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 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 the West, South, and East segments, respectively, which are summarized as follows, along with the Midwest segment.

Segment	Property	State
West	Eldorado Reno	Nevada
	Silver Legacy	Nevada
	Circus Reno	Nevada
	Isle Black Hawk	Colorado
	Lady Luck Black Hawk	Colorado
Midwest	Waterloo	Iowa
	Bettendorf	Iowa
	Boonville	Missouri
	Cape Girardeau	Missouri
	Caruthersville	Missouri
	Kansas City	Missouri
South	Pompano	Florida
	Eldorado Shreveport	Louisiana
	Lake Charles	Louisiana
	Lula	Mississippi
	Vicksburg	Mississippi
East	Presque Isle Downs	Pennsylvania
	Nemacolin	Pennsylvania
	Scioto Downs	Ohio
	Mountaineer	West Virginia

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The following table sets forth, for the periods indicated, certain operating data for our four reportable segments. Amounts related to pre-acquisition periods (prior to May 1, 2017) conform to prior presentation as the additional operating segments associated with the Isle Acquisition are incremental to the previously disclosed reportable segments.

	Three Months Ended						Six months ended
	Ended June 30,						Ended June 30,
	2018			2017			2018			2017
	(in thousands, unaudited)						(in thousands, unaudited)
Revenues and expenses
West:
Net operating revenues	$	117,880		$	99,752		$	217,459		$	163,240
Operating income	$	21,865		$	16,512		$	32,004		$	17,933
Midwest:
Net operating revenues	$	100,607		$	67,641		$	201,402		$	67,641
Operating income	$	27,411		$	15,412		$	54,087		$	15,412
South:
Net operating revenues	$	112,242		$	88,459		$	235,042		$	121,019
Operating income	$	20,564		$	12,610		$	33,923		$	18,528
East:
Net operating revenues	$	125,961		$	119,638		$	242,852		$	225,926
Operating income	$	24,397		$	18,228		$	43,528		$	33,196
Corporate:
Net operating revenues	$	112		$	136		$	239		$	193
Operating loss	$	(16,823	)	$	(93,229	)	$	(31,934	)	$	(101,508	)
Total Reportable Segments
Net operating revenues	$	456,802		$	375,626		$	896,994		$	578,019
Operating income (loss)	$	77,414		$	(30,467	)	$	131,608		$	(16,439	)
Reconciliations to consolidated net income    (loss):
Operating income (loss)	$	77,414		$	(30,467	)	$	131,608		$	(16,439	)
Unallocated income and expenses:
Interest expense, net		(31,405	)		(27,527	)		(62,494	)		(40,197	)
Loss on early retirement of debt, net		—			(27,317	)		(162	)		(27,317	)
(Provision) benefit for income taxes		(9,213	)		39,121			(11,301	)		38,708
Net income (loss)	$	36,796		$	(46,190	)	$	57,651		$	(45,245	)

	Six Months Ended June 30,
	2018		2017
	(in thousands, unaudited)
Capital Expenditures
West	$	29,080	$	18,632
Midwest		9,384		1,763
South		7,083		1,646
East		6,008		4,048
Corporate		3,626		3,735
Total	$	55,181	$	29,824

		West		Midwest		South		East		Corporate, Other & Eliminations			Total
Balance sheet as of June 30, 2018 (unaudited)	(in thousands)
Total assets		$	1,300,315	$	1,215,157	$	814,364	$	1,209,463	$	(939,553	)	$	3,599,746
Goodwill			152,761		322,745		180,044		63,704		—			719,254
Balance sheet as of December 31, 2017
Total assets		$	1,278,062	$	1,188,758	$	804,318	$	1,185,806	$	(910,472	)	$	3,546,472
Goodwill			152,775		327,088		200,417		66,826		—			747,106

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Note 14. Consolidating Condensed Financial Information

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

The following wholly-owned subsidiaries of the Company are guarantors, on a joint and several basis, under the 7% Senior Notes, 6% Senior Notes and Credit Facility: Isle of Capri Casinos LLC; Eldorado Holdco LLC; Eldorado Resorts LLC; Eldorado Shreveport 1 LLC; Eldorado Shreveport 2 LLC; Eldorado Casino Shreveport Joint Venture; MTR Gaming Group Inc.; Mountaineer Park Inc.; Presque Isle Downs Inc.; Scioto Downs Inc.; Eldorado Limited Liability Company; Circus and Eldorado Joint Venture, LLC; CC Reno LLC; CCR Newco LLC; Black Hawk Holdings, L.L.C.; IC Holdings Colorado, Inc.; CCSC/Blackhawk, Inc.; IOC-Black Hawk Distribution Company, LLC; IOC-Black Hawk County, Inc.; Isle of Capri Bettendorf, L.C.; PPI, Inc.; Pompano Park Holdings LLC; IOC-Lula, Inc.; IOC-Kansas City, Inc.; IOC-Boonville, Inc.; IOC-Caruthersville, LLC; IOC Cape Girardeau, LLC; IOC-Vicksburg, Inc.; IOC-Vicksburg, L.L.C.; Rainbow Casino-Vicksburg Partnership, L.P.; IOC Holdings L.L.C.; St. Charles Gaming Company, L.L.C.; Elgin Riverboat Resort-Riverboat Casino; Elgin Holdings I LLC; Elgin Holdings II LLC, PPI Development Holdings LLC; and PPI Development LLC.  Each of the subsidiaries’ guarantees is joint and several with the guarantees of the other subsidiaries.   

The consolidating condensed balance sheet as of June 30, 2018 is as follows:

Balance Sheet	Eldorado Resorts, Inc. (Parent Obligor)		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating and Eliminating Entries			Eldorado Resorts, Inc. Consolidated
	(in thousands, unaudited)
Current assets	$	100,202	$	378,207	$	26,994	$	—		$	505,403
Intercompany receivables		145,580		—		33,680		(179,260	)		—
Investments in subsidiaries		2,541,456		—		—		(2,541,456	)		—
Property and equipment, net		13,659		1,378,375		8,054		—			1,400,088
Other assets		49,707		1,655,020		22,847		(33,319	)		1,694,255
Total assets	$	2,850,604	$	3,411,602	$	91,575	$	(2,754,035	)	$	3,599,746
Current liabilities	$	34,402	$	156,325	$	26,965	$	—		$	217,692
Intercompany payables		—		154,260		25,000		(179,260	)		—
Long-term debt, less current maturities		1,815,523		375,000		226		—			2,190,749
Deferred income tax liabilities		—		209,926		—		(33,319	)		176,607
Other accrued liabilities		4,035		11,160		2,780		—			17,975
Stockholders’ equity		996,644		2,504,931		36,604		(2,541,456	)		996,723
Total liabilities and stockholders’    equity	$	2,850,604	$	3,411,602	$	91,575	$	(2,754,035	)	$	3,599,746

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The consolidating condensed balance sheet as of December 31, 2017 is as follows:

Balance Sheet	Eldorado Resorts, Inc. (Parent Obligor)		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating and Eliminating Entries			Eldorado Resorts, Inc. Consolidated
	(in thousands)
Current assets	$	27,572	$	201,321	$	22,139	$	—		$	251,032
Intercompany receivables		274,148		—		34,492		(308,640	)		—
Investments in subsidiaries		2,437,287		—		—		(2,437,287	)		—
Property and equipment, net		12,042		1,483,473		7,302		—			1,502,817
Other assets		37,458		1,764,291		27,283		(36,409	)		1,792,623
Total assets	$	2,788,507	$	3,449,085	$	91,216	$	(2,782,336	)	$	3,546,472
Current liabilities	$	28,676	$	169,348	$	25,726	$	—		$	223,750
Intercompany payables		—		283,640		25,000		(308,640	)		—
Long-term debt, less current maturities		1,814,185		375,000		393		—			2,189,578
Deferred income tax liabilities		—		199,376		—		(36,409	)		162,967
Other accrued liabilities		4,127		19,624		4,828		—			28,579
Stockholders’ equity		941,519		2,402,097		35,269		(2,437,287	)		941,598
Total liabilities and stockholders’    equity	$	2,788,507	$	3,449,085	$	91,216	$	(2,782,336	)	$	3,546,472

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

	Eldorado Resorts, Inc. (Parent Obligor)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating and Eliminating Entries			Eldorado Resorts, Inc. Consolidated
	(in thousands, unaudited)
Revenues:
Gaming and pari-mutuel    commissions	$	—		$	340,960		$	7,760		$	—		$	348,720
Non-gaming		—			105,555			2,527			—			108,082
Net revenues		—			446,515			10,287			—			456,802
Operating expenses:
Gaming and pari-mutuel    commissions		—			164,837			5,108			—			169,945
Non-gaming		—			66,092			683			—			66,775
Marketing and promotions		—			21,421			411			—			21,832
General and administrative		—			71,872			1,873			—			73,745
Corporate		11,259			335			638			—			12,232
Impairment charges		—			—			—			—			—
Management fee		(7,030	)		7,030			—			—			—
Depreciation and amortization		950			30,798			162			—			31,910
Total operating expenses		5,179			362,385			8,875			—			376,439
Gain on sale of asset or disposal of    property and equipment		—			421			2			—			423
Transaction expenses		(3,335	)		(69	)		—			—			(3,404	)
Equity in income of unconsolidated    affiliate		—			32			—			—			32
Operating (loss) income		(8,514	)		84,514			1,414			—			77,414
Interest expense, net		(25,075	)		(5,919	)		(411	)		—			(31,405	)
Loss on early retirement of debt, net		—			—			—			—			—
Subsidiary income (loss)		60,771			—			—			(60,771	)		—
Income (loss) before income    taxes		27,182			78,595			1,003			(60,771	)		46,009
Income tax benefit (provision)		9,614			(18,438	)		(389	)		—			(9,213	)
Net income (loss)	$	36,796		$	60,157		$	614		$	(60,771	)	$	36,796

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The consolidating condensed statement of operations for the three months ended June 30, 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)
Revenues:
Gaming and pari-mutuel    commissions	$	—		$	274,023		$	5,682		$	—		$	279,705
Non-gaming		—			94,023			1,898			—			95,921
Net revenues		—			368,046			7,580			—			375,626
Operating expenses:
Gaming and pari-mutuel    commissions		—			139,891			3,846			—			143,737
Non-gaming		—			61,325			649			—			61,974
Marketing and promotions		—			20,893			638			—			21,531
General and administrative		—			59,637			1,250			—			60,887
Corporate		6,974			(328	)		796			—			7,442
Management fee		(6,974	)		6,774			200			—			—
Depreciation and amortization		183			24,637			89			—			24,909
Total operating expenses		183			312,829			7,468			—			320,480
(Loss) gain on sale of asset or disposal of    property and equipment		(21	)		(68	)		—			—			(89	)
Transaction expenses		(67,559	)		(17,905	)		—			—			(85,464	)
Equity in loss of unconsolidated    affiliate		—			(60	)		—			—			(60	)
Operating (loss) income		(67,763	)		37,184			112			—			(30,467	)
Interest expense, net		(20,905	)		(6,344	)		(278	)		—			(27,527	)
Loss on early retirement of debt, net		(27,317	)		—			—			—			(27,317	)
Subsidiary income (loss)		16,401			—			—			(16,401	)		—
(Loss) income before income    taxes		(99,584	)		30,840			(166	)		(16,401	)		(85,311	)
Income tax benefit (provision)		53,394			(14,364	)		91			—			39,121
Net (loss) income	$	(46,190	)	$	16,476		$	(75	)	$	(16,401	)	$	(46,190	)

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

	Eldorado Resorts, Inc. (Parent Obligor)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating and Eliminating Entries			Eldorado Resorts, Inc. Consolidated
	(in thousands, unaudited)
Revenues:
Gaming and pari-mutuel    commissions	$	—		$	676,753		$	15,495		$	—		$	692,248
Non-gaming		—			199,578			5,168			—			204,746
Net revenues		—			876,331			20,663			—			896,994
Operating expenses:
Gaming and pari-mutuel    commissions		—			329,140			10,356			—			339,496
Non-gaming		—			130,067			1,395			—			131,462
Marketing and promotions		—			42,256			877			—			43,133
General and administrative		—			144,299			3,648			—			147,947
Corporate		21,553			657			1,591			—			23,801
Impairment charges		—			9,815			—			—			9,815
Management fee		(12,167	)		12,167			—			—			—
Depreciation and amortization		1,723			61,398			323			—			63,444
Total operating expenses		11,109			729,799			18,190			—			759,098
(Loss) gain on sale of asset or disposal of    property and equipment		—			(285	)		2			—			(283	)
Transaction expenses		(5,453	)		(499	)		—			—			(5,952	)
Equity in loss of unconsolidated    affiliate		—			(53	)		—			—			(53	)
Operating (loss) income		(16,562	)		145,695			2,475			—			131,608
Interest expense, net		(49,345	)		(12,205	)		(944	)		—			(62,494	)
Loss on early retirement of debt, net		(162	)		—			—			—			(162	)
Subsidiary income (loss)		104,076			—			—			(104,076	)		—
Income (loss) before income    taxes		38,007			133,490			1,531			(104,076	)		68,952
Income tax benefit (provision)		19,644			(30,741	)		(204	)		—			(11,301	)
Net income (loss)	$	57,651		$	102,749		$	1,327		$	(104,076	)	$	57,651

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The consolidating condensed statement of operations for the six months ended June 30, 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)
Revenues:
Gaming and pari-mutuel    commissions	$	—		$	416,208		$	5,687		$	—		$	421,895
Non-gaming		—			154,168			1,956			—			156,124
Net revenues		—			570,376			7,643			—			578,019
Operating expenses:
Gaming and pari-mutuel    commissions		—			221,079			3,846			—			224,925
Non-gaming		—			102,591			649			—			103,240
Marketing and promotions		—			31,018			642			—			31,660
General and administrative		—			91,437			1,250			—			92,687
Corporate		13,548			(328	)		796			—			14,016
Management fee		(13,548	)		13,348			200			—			—
Depreciation and amortization		332			40,092			89			—			40,513
Total operating expenses		332			499,237			7,472			—			507,041
Loss on sale of asset or disposal of    property and equipment		(21	)		(36	)		—			—			(57	)
Transaction expenses		(69,173	)		(17,905	)		—			—			(87,078	)
Equity in loss of unconsolidated    affiliate		—			(282	)		—			—			(282	)
Operating (loss) income		(69,526	)		52,916			171			—			(16,439	)
Interest expense, net		(26,994	)		(12,925	)		(278	)		—			(40,197	)
Loss on early retirement of debt, net		(27,317	)		—			—			—			(27,317	)
Subsidiary income (loss)		25,656			—			—			(25,656	)		—
(Loss) income  before income    taxes		(98,181	)		39,991			(107	)		(25,656	)		(83,953	)
Income tax benefit (provision)		52,936			(14,319	)		91			—			38,708
Net (loss) income	$	(45,245	)	$	25,672		$	(16	)	$	(25,656	)	$	(45,245	)

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

	Eldorado Resorts, Inc. (Parent Obligor)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating andEliminating Entries		Eldorado Resorts, Inc. Consolidated
	(in thousands, unaudited)
Net cash (used in) provided by    operating activities	$	(34,171	)	$	179,830		$	2,845		$	—	$	148,504
INVESTING ACTIVITIES:
Purchase of property and equipment, net		(2,246	)		(51,862	)		(1,073	)		—		(55,181	)
Proceeds from sale of property and equipment		—			840			—			—		840
Deposit on acquisitions		(15,000	)		—			—			—		(15,000	)
Net cash used in investing   activities		(17,246	)		(51,022	)		(1,073	)		—		(69,341	)
FINANCING ACTIVITIES:
Net proceeds from (payments to) related   parties		128,564			(128,034	)		(530	)		—		—
Payments on other long-term payables		(44	)		(157	)		(143	)		—		(344	)
Debt issuance costs		(305	)		—			—			—		(305	)
Taxes paid related to net share settlement    of equity awards		(9,677	)		—			—			—		(9,677	)
Net cash provided by (used in)    financing activities		118,538			(128,191	)		(673	)		—		(10,326	)
Increase in cash, cash equivalents and    restricted cash		67,121			617			1,099			—		68,837
Cash, cash equivalents and restricted    cash, beginning of period		13,836			118,483			15,430			—		147,749
Cash, cash equivalents and restricted    cash, end of period	$	80,957		$	119,100		$	16,529		$	—	$	216,586
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO AMOUNTS REPORTED WITHIN THE CONDENSED    CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents	$	80,240		$	114,283		$	7,493		$	—	$	202,016
Restricted cash		717			3,817			149			—		4,683
Restricted cash included in other noncurrent    assets		—			1,000			8,887			—		9,887
Total cash, cash equivalents and restricted    cash	$	80,957		$	119,100		$	16,529		$	—	$	216,586

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The consolidating condensed statement of cash flows for the six months ended June 30, 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	$	(82,624	)	$	79,645		$	6,022		$	—	$	3,043
INVESTING ACTIVITIES:
Purchase of property and equipment, net		(3,273	)		(26,536	)		(15	)		—		(29,824	)
Net cash used in business combinations		(1,313,051	)		—			—			—		(1,313,051	)
Net cash used in investing activities		(1,316,324	)		(26,536	)		(15	)		—		(1,342,875	)
FINANCING ACTIVITIES:
Proceeds from issuance of Term Loan		1,450,000			—			—			—		1,450,000
Proceeds from issuance of 6% Senior Notes		375,000			—			—			—		375,000
Borrowings under Revolving Credit    Facility		189,953			—			—			—		189,953
Payments under Term Loan		(422,250	)		—			—			—		(422,250	)
Payments under Revolving Credit Facility		(128,953	)		—			—			—		(128,953	)
Net (payments to) proceeds from related    parties		(4,167	)		(3,283	)		7,450			—		—
Payments on other long-term payables		—			(169	)		(41	)		—		(210	)
Debt issuance costs		(44,992	)		—			—			—		(44,992	)
Taxes paid related to net share settlement of    equity awards		(8,993	)		—			—			—		(8,993	)
Proceeds from exercise of stock options		2,898			—			—			—		2,898
Net cash provided by (used in)    financing activities		1,408,496			(3,452	)		7,409			—		1,412,453
Increase in cash, cash equivalents and    restricted cash		9,548			49,657			13,416			—		72,621
Cash, cash equivalents and restricted    cash, beginning of period		1,410			61,702			332			—		63,444
Cash, cash equivalents and restricted    cash, end of period	$	10,958		$	111,359		$	13,748		$	—	$	136,065
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO AMOUNTS REPORTED WITHIN THE CONDENSED    CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents	$	10,280		$	88,439		$	4,905		$	—	$	103,624
Restricted cash		678			21,920			(32	)		—		22,566
Restricted cash included in other noncurrent    assets		—			1,000			8,875			—		9,875
Total cash, cash equivalents and restricted    cash	$	10,958		$	111,359		$	13,748		$	—	$	136,065

Note 15. Acquisitions

Grand Victoria Casino

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 transaction closed on August 7, 2018 and was funded using cash from our ongoing operations and borrowings under our revolving credit facility. The Company is in the preliminary phase of determining the fair value of the assets and liabilities assumed and as of the filing date cannot estimate the financial impact of the acquisition.

Transaction expenses attributed to the Grand Victoria Acquisition for the three and six months ended June 30, 2018 totaled $0.7 million and $1.3 million, respectively. As of June 30, 2018, $0.1 million of accrued costs and expenses related to the Grand Victoria are included in accrued other liabilities.

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Tropicana Entertainment Inc.

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 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 substantially concurrently with the consummation of the Tropicana Acquisition and extend the maturity of the revolving credit facility to the fifth anniversary of the effective date of such increase.

The transaction is expected to close in the fourth quarter of 2018.

Transaction expenses attributed to the Tropicana Acquisition for the three and six months ended June 30, 2018 totaled $2.5 million and $3.5 million, respectively. As of June 30, 2018, $0.1 million of accrued costs and expenses related to the Tropicana Acquisition are included in accrued other liabilities.

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

We were founded in 1973 by the Carano Family with the opening of the Eldorado Hotel Casino in Reno, Nevada. In 1993, we partnered with MGM Resorts International on the Silver Legacy Resort Casino, the first mega-themed resort in Reno. In 2005, we acquired our first property outside of Reno when we acquired a casino in Shreveport, Louisiana, now known as Eldorado Shreveport. In September 2014, we merged with MTR Gaming Group, Inc. and acquired its three gaming and racing facilities in Ohio, Pennsylvania and West Virginia. The following year, in November 2015, we acquired Circus Circus Reno and the 50% membership interest in the Silver Legacy that was owned by MGM Resorts International. On May 1, 2017, we completed our most recent – and largest – acquisition to date when we acquired Isle of Capri Casinos, Inc. (“Isle” or “Isle of Capri”), adding another 13 gaming properties to our portfolio.

We own and operate 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 1,128 slot machines and 36 table games;

• Silver Legacy Resort Casino (“Silver Legacy”)—A 1,685-room themed hotel and casino connected via an enclosed skywalk to Eldorado Reno and Circus Reno that includes 1,208 slot machines, 58 table games and a 13 table poker room;

• Circus Circus Reno (“Circus Reno”)—A 1,571-room hotel-casino and entertainment complex connected via an enclosed skywalk to Eldorado Reno and Silver Legacy that includes 706 slot machines and 24 table games;

• Eldorado Resort Casino Shreveport (“Eldorado Shreveport”)—A 403-room, all suite art deco-style hotel and tri-level riverboat dockside casino situated on the Red River in Shreveport, Louisiana that includes 1,388 slot machines, 52 table games and an eight table poker room;

• Mountaineer Casino, Racetrack & Resort (“Mountaineer”)—A 357-room hotel, casino, entertainment and live thoroughbred horse racing facility located on the Ohio River at the northern tip of West Virginia’s northwestern panhandle that includes 1,487 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 1,596 slot machines, 32 table games and a seven table poker room located in Erie, Pennsylvania;

• Eldorado Gaming Scioto Downs (“Scioto Downs”)—A modern “racino” offering 2,237 video lottery terminals (“VLTs”), harness racing and a 118-room third party hotel connected to Scioto Downs located 15 minutes from downtown Columbus, Ohio;

• Isle Casino Hotel—Black Hawk (“Isle Black Hawk”)—A land-based casino on an approximately 10-acre site in Black Hawk, Colorado that includes 1,005 slot machines, 30 table games, a nine table poker room and a 238-room hotel;

• Lady Luck Casino—Black Hawk (“Lady Luck Black Hawk”)—A land-based casino across the intersection from Isle Casino Hotel in Black Hawk Colorado, that includes 472 slot machines, eleven table games and a 164-room hotel with a parking structure connecting Isle Casino Hotel-Black Hawk and Lady Luck Casino-Black Hawk;

33

• 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 1,461 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 Bettendorf (“Bettendorf”)—A land-based single-level casino located off Interstate 74 in Bettendorf, Iowa that includes 974 slot machines and 20 table games with two hotel towers with 509 hotel rooms;

• Isle Casino Waterloo (“Waterloo”)—A single-level land-based casino in Waterloo, Iowa that includes 936 slot machines, 25 table games, and a 194-room hotel;

• Isle of Capri Casino Hotel Lake Charles (“Lake Charles”)—A gaming vessel on an approximately 19 acre site in Lake Charles, Louisiana, with 1,173 slot machines, 45 table games, including 13 poker tables, and two hotels offering 493 rooms;

• Isle of Capri Casino Lula (“Lula”)—Two dockside casinos in Lula, Mississippi with 871 slot machines and 19 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 603 slot machines, eight 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 885 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 870 slot machines and 24 table games, including four poker tables;

• Lady Luck Casino Caruthersville (“Caruthersville”)—A riverboat casino located along the Mississippi River in Caruthersville, Missouri that includes 512 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 969 slot machines and 13 table games; and

• Lady Luck Casino Nemacolin (“Nemacolin”)—A casino property located on the 2,000-acre Nemacolin Woodlands Resort in Western Pennsylvania that includes 600 slot machines and 27 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.

Acquisitions

On April 16, 2018, we announced that we entered into a definitive agreement to acquire the Grand Victoria Casino in Elgin, Illinois for $327.5 million in cash plus a customary working capital adjustment. The transaction closed on August 7, 2018 and was funded using cash from our ongoing operations and borrowings under our revolving credit facility.

Also on April 16, 2018, we announced that we entered into a definitive agreement to acquire Tropicana Entertainment Inc. in a cash transaction that is valued at $1.85 billion. The definitive agreement provides that Gaming and Leisure Properties will pay $1.21 billion, excluding taxes and expenses, for substantially all of Tropicana’s real estate and enter into a master lease with us for the acquired real estate and 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 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 Gaming and Leisure Properties, we 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 our 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.

34

We intend to fund the consideration of approximately $640 million payable by us in the Tropicana transaction and repay debt outstanding under Tropicana’s credit facility with cash generated from our current operations, 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 substantially concurrently with the consummation of the Tropicana Acquisition and extend the maturity of the revolving credit facility to the fifth anniversary of the effective date of such increase. The transaction is expected to close in the fourth quarter of 2018.

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 (“CDI”). Under the terms of the agreements, CDI 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.

The definitive agreements provided that the transactions 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. On May 7, 2018, the Company and CDI each received a Request for Additional Information and Documentary Materials, often referred to as a “Second Request,” from the Federal Trade Commission in connection with its review of the Vicksburg acquisition.

Following receipt of, and in consideration of the time and expense needed to reply to, the Second Request, pursuant to a Termination Agreement and Release, dated as of July 6, 2018 (the “Vicksburg Termination Agreement”), by and among CDI, ERI and a wholly owned subsidiary of ERI, the Company and CDI mutually agreed to terminate the asset purchase agreement with respect to the Vicksburg transaction. Concurrently with the termination of the Vicksburg agreement, we agreed to enter into an agreement pursuant to which CDI will acquire and assume our rights and obligations to operate Nemacolin. In connection with the Vicksburg Termination Agreement, CDI has agreed to pay the Company a $5.0 million termination fee, subject to the parties’ execution of a definitive agreement with respect to the Nemacolin transaction.

Both sales are expected to close in the fourth quarter of 2018, subject to satisfaction of closing conditions, including receipt of Pennsylvania regulatory approvals, termination of the waiting period under the Hart-Scott-Rodino Act and, in the case of Presque Isle Downs, the execution of the definitive agreement with respect to the Nemacolin transaction.

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Reportable Segments

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, 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 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 the West, South, and East segments, respectively, which are summarized as follows, along with the Midwest segment.

Segment		Property	State
West		Eldorado Reno	Nevada
		Silver Legacy	Nevada
		Circus Reno	Nevada
		Isle Black Hawk	Colorado
		Lady Luck Black Hawk	Colorado
Midwest		Waterloo	Iowa
		Bettendorf	Iowa
		Boonville	Missouri
		Cape Girardeau	Missouri
		Caruthersville	Missouri
		Kansas City	Missouri
South	��	Pompano	Florida
		Eldorado Shreveport	Louisiana
		Lake Charles	Louisiana
		Lula	Mississippi
		Vicksburg	Mississippi
East		Presque Isle Downs	Pennsylvania
		Nemacolin	Pennsylvania
		Scioto Downs	Ohio
		Mountaineer	West Virginia

Presentation of Financial Information

The financial information included in this Item 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 acquisition of Isle and after our acquisition of Isle are not fully comparable because the results of operations for Isle are not included for periods prior to our acquisition of Isle.

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.

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Significant Factors Impacting Financial Results

The following summary highlights the significant factors impacting our financial results for the three and six months ended June 30, 2018 and 2017.

• Isle Acquisition– Our results of operations for the three and six months ended June 30, 2018 include incremental revenues and expenses attributable to the 13 properties we acquired in our acquisition of Isle on May 1, 2017.

• Transaction expenses related to our acquisition of Isle for legal, accounting, financial advisory services, severance, stock awards and other costs totaled $0.2 million and $1.1 million for the three and six months ended June 30, 2018, respectively, and $85.5 million and $87.1 million for the three and six months ended June 30, 2017, respectively.

• Debt Refinancing –In connection with the Isle Acquisition, we completed a debt financing transaction comprised of: a senior secured credit facility in an aggregate principal amount of $1.75 billion with a term loan facility of $1.45 billion and revolving credit facility of $300.0 million and $375.0 million of senior unsecured notes. The proceeds of such borrowings were used to pay the cash portion of the consideration payable in the Isle Merger, refinance all of Isle’s existing credit facilities, redeem or otherwise repurchase all of Isle’s senior and senior subordinated notes, refinance our existing credit facility and pay transaction fees and expenses related to the foregoing. We recognized a loss totaling $0.7 million for the three and six months ended June 30, 2017 as a result of the debt refinancing transaction (See “Liquidity and Capital Resources” for more information related to the debt refinancing).

• Acquisitions– Transaction expenses related to our acquisition of Grand Victoria Casino and pending acquisition of Tropicana Entertainment Inc. totaled $0.7 million and $2.5 million, respectively, for the three months ended June 30, 2018, and $1.3 million and $3.5 million, respectively, for the six months ended June 30, 2018.

• Pending Dispositions – The sales ofPresque Isle Downs and Vicksburg met the requirements for presentation as assets held for sale under generally accepted accounting principles. However, they did not meet the requirements for presentation as discontinued operations and are included in income from continuing operations for the three and six months ended June 30, 2018. Based on the triggering event, we recorded an impairment charge for the six months ended June 30, 2018 totaling $9.8 million related to our Vicksburg property. Effective July 6, 2018, the sale of Vicksburg was terminated. Concurrently with the termination, we agreed to enter into an agreement to sell our rights and obligations to operate Nemacolin.

• Lake Charles Terminated Sale – On August 22, 2016, Isle entered into an agreement to sell its casino and hotel property in Lake Charles, Louisiana, for $134.5 million, subject to a customary purchase price adjustment, to an affiliate of Laguna Development Corporation, a Pueblo of Laguna-owned business based in Albuquerque, New Mexico. On November 21, 2017, we terminated the agreement. The closing of the transaction was subject to certain closing conditions, including obtaining certain gaming approvals, and was to occur on or before the termination date, which had been extended by the parties to November 20, 2017. The buyer did not obtain the required gaming approvals prior to the termination date, and pursuant to the terms of the agreement, 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 for sale and as discontinued operations, and is included in our results of operations for the three and six months ended June 30, 2018 and 2017.

• Income Taxes – On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate from 35% to 21% 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 six months ended June 30, 2017.

Additionally, our operations were impacted system wide by challenging weather in January and February of 2018 as well as our Reno operations in March of 2018.

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• Execution of Cost Savings Program – We continue to achieve margin growth in 2018 through 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 and promotion, advertising, food and beverage and labor expense management 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 2017 and 2018. As part of the continuing evolution of the Reno tri-properties, we are building a new 21,000 square foot spa at Silver Legacy planned to open this fall. We have substantially renovated every room at Circus Reno and will start the first phase of 400 rooms at Silver Legacy and 42 high-end suites at Eldorado after the busy summer season. In Black Hawk we expect to renovate all 402 hotel rooms this winter. In addition, recently we announced a joint venture with the Cordish Companies for the development of a new world-class, mixed-use entertainment and hospitality destination anchored by our Isle Casino Racing Pompano Park.

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								Six Months Ended
	June 30,								June 30,
	2018		2017			Change			2018		2017			Change
Net revenues	$	456,802	$	375,626			21.6	%	$	896,994	$	578,019			55.2	%
Operating income (loss)		77,414		(30,467	)		354.1	%		131,608		(16,439	)		900.6	%
Net income (loss)		36,796		(46,190	)		179.7	%		57,651		(45,245	)		227.4	%

Operating Results.  For the three months ended June 30, 2018 compared to the same prior year period, Isle contributed incremental net revenues totaling $76.0 million for April 2018. For the six months ended June 30, 2018 compared to the same prior year period, Isle contributed $308.0 million of incremental net revenues from January 1, 2018 through April 30, 2018 (the comparative period preceding our acquisition of Isle on May 1, 2017). Including incremental Isle net revenues, net revenues increased 21.6% and 55.2%, respectively, for the three and six months ended June 30, 2018 compared to the same prior year periods. Incremental Isle net revenues in both periods consisted primarily of gaming revenues. Excluding incremental Isle net revenues, net revenues increased 1.4% and 1.9%, respectively, for the three and six months ended June 30, 2018 compared to the same prior year periods primarily due to growth in our West and East segments.

Operating income increased $107.9 million and $148.0 for the three and six months ended June 30, 2018 compared to the same prior year periods. In addition to the incremental operating income contributed by the acquired Isle properties, these increases over prior year were mainly due to the significant amount of Isle transaction expenses incurred during the three and six months ended June 30, 2017.

Net income increased $83.0 million and $102.9 million for the three and six months ended June 30, 2018, respectively, compared to the same prior year periods. These increases were due to the same factors impacting operating income combined with the loss on the early retirement of debt for the three and six months ended June 30, 2017 associated with our refinancing completed in May of 2017. These increases were partially offset by higher interest expense during the 2018 periods resulting from increased debt following our acquisition of Isle along with increases in our tax provision.

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Net Revenues and Operating Income (Loss)

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

	Net Revenues for the Three Months Ended June 30,				Operating Income (Loss) for the Three Months Ended June 30,
	2018		2017		2018			2017
West	$	117,880	$	99,752	$	21,865		$	16,512
Midwest		100,607		67,641		27,411			15,412
South		112,242		88,459		20,564			12,610
East		125,961		119,638		24,397			18,228
Corporate		112		136		(16,823	)		(93,229	)
Total	$	456,802	$	375,626	$	77,414		$	(30,467	)
	Net Revenues for the Six Months Ended June 30,				Operating Income (Loss) for the Six Months Ended June 30,
	2018		2017		2018			2017
West	$	217,459	$	163,240	$	32,004		$	17,933
Midwest		201,402		67,641		54,087			15,412
South		235,042		121,019		33,923			18,528
East		242,852		225,926		43,528			33,196
Corporate		239		193		(31,934	)		(101,508	)
Total	$	896,994	$	578,019	$	131,608		$	(16,439	)

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Three Months Ended June 30, 2018 Compared to the Three Months Ended June 30, 2017

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

	Three Months Ended
	June 30,							Percent
	2018		2017		Variance			Change
Revenues:
Gaming and Pari-Mutuel Commissions:
West	$	57,696	$	45,229	$	12,467			27.6		%
Midwest		87,448		57,987		29,461			50.8		%
South		91,584		70,505		21,079			29.9		%
East		111,992		105,984		6,008			5.7		%
Total Gaming and Pari-Mutuel Commissions		348,720		279,705		69,015			24.7		%
Non-gaming:
West		60,184		54,523		5,661			10.4		%
Midwest		13,159		9,654		3,505			36.3		%
South		20,658		17,954		2,704			15.1		%
East		13,969		13,654		315			2.3		%
Corporate		112		136		(24	)		(17.6	)	%
Total Non-gaming		108,082		95,921		12,161			12.7		%
Total Net Revenues		456,802		375,626		81,176			21.6		%
Expenses:
Gaming and Pari-Mutuel Commissions:
West		21,328		18,126		3,202			17.7		%
Midwest		35,531		24,252		11,279			46.5		%
South		43,631		35,423		8,208			23.2		%
East		69,455		65,936		3,519			5.3		%
Total Gaming and Pari-Mutuel Commissions		169,945		143,737		26,208			18.2		%
Non-gaming
West		36,691		33,197		3,494			10.5		%
Midwest		7,802		6,779		1,023			15.1		%
South		13,485		12,893		592			4.6		%
East		8,797		9,105		(308	)		(3.4	)	%
Total Non-gaming		66,775		61,974		4,801			7.7		%
Marketing and promotions		21,832		21,531		301			1.4		%
General and administrative		73,745		60,887		12,858			21.1		%
Corporate		12,232		7,442		4,790			64.4		%
Depreciation and amortization		31,910		24,909		7,001			28.1		%
Total Operating Expenses	$	376,439	$	320,480	$	55,959			17.5		%

Gaming Revenues and Pari-Mutuel Commissions.  Isle contributed $64.8 million of incremental gaming revenues and pari-mutuel commissions for the three months ended June 30, 2018 resulting in an increase of 24.7% compared to the same prior year period.

Excluding incremental Isle gaming revenues and pari-mutuel commissions, gaming revenues and pari-mutuel commissions increased 1.5% for the three months ended June 30, 2018 compared to the same prior year period mainly due to higher gaming revenues in the West segment driven by a strong quarter and traffic generated by increased convention business.

Non-gaming Revenues.  Isle contributed $11.0 million of incremental non-gaming revenues for the three months ended June 30, 2018 resulting in an increase of 12.7% over the same prior year period.

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Excluding incremental Isle non-gaming revenues, non-gaming revenues increased 1.2% for the three months ended June 30, 2018 compared to the same prior year period. Growth in the West segment’s non-gaming revenues principally due to higher hotel revenues associated with increased occupancy and room rates were partially offset by decreased non-gaming revenues in the Midwest and South segments.

Gaming Expenses and Pari-Mutuel Commissions.  Isle contributed $28.3 million of incremental gaming expenses and pari-mutuel commissions for the three months ended June 30, 2018 resulting in an increase of 18.2% in gaming expenses and pari-mutuel commissions over the same prior year period.

Excluding incremental Isle gaming expenses and pari-mutuel commissions, gaming expenses and pari-mutuel commissions decreased 1.5% for the three months ended June 30, 2018 compared to the same prior year period. Despite the increase in gaming revenues, gaming expenses declined in comparison to the same prior year period due to savings initiatives targeted at reducing variable expenses. Successful efforts to control costs and maximize departmental profit across all segments also drove the improved departmental profit margin during the three months ended June 30, 2018 compared to the same prior year period.

Non-gaming Expenses.  Isle contributed $7.2 million of incremental non-gaming expenses for the three months ended June 30, 2018 resulting in an increase of 7.7% over the same prior year period.

Excluding incremental Isle non-gaming expenses, non-gaming expenses decreased 3.9% for the three months ended June 30, 2018 compared to the same prior year period. Increased expenses associated with higher non-gaming revenues and hotel occupancy in the West segment were offset by lower non-gaming expenses in the Midwest and South segments. Additionally, the growth in room rates in the West segment contributed to improved non-gaming margins for the three months ended June 30, 2018 compared to the same prior year period.

Marketing and Promotions Expenses.  Isle contributed $3.6 million of incremental marketing and promotions expense in for the three months ended June 30, 2018 resulting in an increase of 1.4% over the same prior year period.  

Excluding incremental Isle marketing and promotions expenses, consolidated marketing and promotions expense decreased 15.3% for the three months ended June 30, 2018 compared to the same prior year period resulting from realized savings across all segments.

General and Administrative Expenses.  Isle contributed $13.6 million of general and administrative expense for the three months ended June 30, 2018 resulting in an increase of 21.1% over the same prior year period.  

Excluding incremental Isle general and administrative expenses, consolidated general and administrative expenses decreased 1.3% for the three months ended June 30, 2018 compared to the same prior year period mainly due to the centralization of certain corporate services provided to our properties.

Corporate Expenses.  For the three months ended June 30, 2018 compared to the same prior year period, corporate expenses increased primarily due to payroll and other expenses associated with additional corporate costs, including stock comp expense, driven by growth related to the Isle Acquisition.

Depreciation and Amortization Expense.  Isle contributed $5.9 million of depreciation expense for the three months ended June 30, 2018 resulting in an increase of 28.1% over the same prior year period.  

Excluding incremental Isle depreciation and amortization expense, depreciation and amortization expense increased 4.5% for the three months ended June 30, 2018 compared to the same prior year period.

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Six Months Ended June 30, 2018 Compared to the Six Months Ended June 30, 2017

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

	Six Months Ended
	June 30,						Percent
	2018		2017		Variance		Change
Revenues:
Gaming and Pari-Mutuel Commissions:
West	$	107,430	$	69,062	$	38,368		55.6	%
Midwest		175,807		57,987		117,820		203.2	%
South		192,502		93,674		98,828		105.5	%
East		216,509		201,172		15,337		7.6	%
Total Gaming and Pari-Mutuel Commissions		692,248		421,895		270,353		64.1	%
Non-gaming:
West		110,029		94,178		15,851		16.8	%
Midwest		25,595		9,654		15,941		165.1	%
South		42,540		27,345		15,195		55.6	%
East		26,343		24,754		1,589		6.4	%
Corporate		239		193		46		23.8	%
Total Non-gaming		204,746		156,124		48,622		31.1	%
Total Net Revenues		896,994		578,019		318,975		55.2	%
Expenses:
Gaming and Pari-Mutuel Commissions:
West		41,726		28,439		13,287		46.7	%
Midwest		71,475		24,251		47,224		194.7	%
South		91,987		47,651		44,336		93.0	%
East		134,308		124,584		9,724		7.8	%
Total Gaming and Pari-Mutuel Commissions		339,496		224,925		114,571		50.9	%
Non-gaming
West		70,434		61,118		9,316		15.2	%
Midwest		15,955		6,779		9,176		135.4	%
South		28,042		18,510		9,532		51.5	%
East		17,031		16,833		198		1.2	%
Total Non-gaming		131,462		103,240		28,222		27.3	%
Marketing and promotions		43,133		31,660		11,473		36.2	%
General and administrative		147,947		92,687		55,260		59.6	%
Corporate		23,801		14,016		9,785		69.8	%
Impairment charges		9,815		—		9,815		100.0	%
Depreciation and amortization		63,444		40,513		22,931		56.6	%
Total Operating Expenses	$	759,098	$	507,041	$	252,057		49.7	%

Gaming Revenues and Pari-Mutuel Commissions.  Isle contributed $262.8 million of incremental gaming revenues and pari-mutuel commissions for the six months ended June 30, 2018 resulting in an increase of 64.1% compared to the same prior year period.

Excluding incremental Isle gaming revenues and pari-mutuel commissions, gaming revenues and pari-mutuel commissions increased 1.8% for the six months ended June 30, 2018 compared to the same prior year period mainly due to higher gaming revenues in the West segment driven by increased visitor traffic and milder weather in 2018.

Non-gaming Revenues.  Isle contributed $44.9 million of incremental non-gaming revenues for the six months ended June 30, 2018 resulting in an increase of 31.1% in non-gaming revenues compared to the same prior year period.

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Excluding incremental Isle non-gaming revenues, non-gaming revenues increased 2.4% for the six months ended June 30, 2018 compared to the same prior year period mainly due to growth in the West segment’s hotel occupancy and room rates associated with increased visitor traffic and milder weather. Additionally, the West segment benefitted from the Reno properties’ capital improvements including renovated hotel rooms and new food, beverage and entertainment offerings.

Gaming Expenses and Pari-Mutuel Commissions. Isle contributed $116.1 million of incremental gaming expenses and pari-mutuel commissions for the six months ended June 30, 2018 resulting in an increase of 50.9% in gaming expenses and pari-mutuel commissions over the same prior year period.

Excluding incremental Isle gaming expenses and pari-mutuel commissions, gaming expenses and pari-mutuel commissions remained flat for the six months ended June 30, 2018 compared to the same prior year period despite the increase in gaming revenues due to savings initiatives targeted at reducing variable expenses along with continued synergies. Additionally, successful efforts to control costs and maximize departmental profit across all segments also drove the improved departmental profit margin during the three months ended June 30, 2018 compared to the same prior year period.

Non-gaming Expenses.  Isle contributed $30.5 million of incremental non-gaming expenses for the six months ended June 30, 2018 resulting in an increase of 27.3% compared to the same prior year period.

Excluding incremental Isle non-gaming expenses, non-gaming expenses decreased 2.2% for the six months ended June 30, 2018 compared to the same prior year period. Increased expenses associated with higher non-gaming hotel occupancy in the West segment were offset by lower non-gaming expenses in the South and East segments. Additionally, the growth in room rates in the West segment contributed to improved non-gaming margins for the six months ended June 30, 2018 compared to the same prior year period.

Marketing and Promotions Expenses.  Isle contributed $14.7 million of incremental marketing and promotions expense for the six months ended June 30, 2018 resulting in an increase of 36.2% compared to the same prior year period.

Excluding incremental Isle marketing and promotions expenses, consolidated marketing and promotions expense decreased 10.3% for the six months ended June 30, 2018 compared to the same prior year period due to strategic changes to eliminate unprofitable promotional events and decrease advertising spend.

General and Administrative Expenses.  Isle contributed $55.0 million of incremental general and administrative expense for the six months ended June 30, 2018 resulting in an increase of 59.6% compared to the same prior year period.  

Excluding incremental Isle general and administrative expenses, consolidated general and administrative expenses remained flat for the six months ended June 30, 2018 compared to the same prior year period. Increased expenses in the West and East segments were offset by decreased expenses in the Midwest and South segments.

Corporate Expenses.  For the six months ended June 30, 2018 compared to the same prior year period, corporate expenses increased primarily due to payroll and other expenses associated with additional corporate costs, including stock comp expense, driven by growth related to the Isle Acquisition.

Impairment Charges: Based on the pending disposition, we recorded an impairment charge for the six months ended June 30, 2018 totaling $9.8 million related to our Vicksburg property.

Depreciation and Amortization Expense.  Isle contributed $23.3 million of depreciation expense for the six months ended June 30, 2018 resulting in an increase of 56.6% compared to the same prior year period.  

Excluding incremental Isle depreciation and amortization expense, depreciation and amortization expense remained flat for the six months ended June 30, 2018 compared to the same prior year period.

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Supplemental Unaudited Presentation of Consolidated Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA for the Three and Six Months Ended June 30, 2018 and 2017

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-based compensation, transaction expenses, severance expense, costs associated with the Presque Isle Downs, Vicksburg and Lake Charles sales, impairment charges, equity in income of unconsolidated affiliates, (gain) loss on the sale or disposal of property and equipment, and other non-cash regulatory gaming assessments. Adjusted EBITDA is not a measure of performance or liquidity calculated in accordance with accounting principles generally accepted in the United States (“US GAAP”), is unaudited and should not be considered an alternative to, or more meaningful than, net income (loss) as an indicator of our operating performance. Uses of cash flows that are not reflected in Adjusted EBITDA include capital expenditures, interest payments, income taxes, debt principal repayments and certain regulatory gaming assessments, which can be significant. As a result, Adjusted EBITDA should not be considered as a measure of our liquidity. Other companies that provide EBITDA information may calculate EBITDA differently than we do. The definition of Adjusted EBITDA may not be the same as the definitions used in any of our debt agreements.

The following table summarizes our Adjusted EBITDA for our operating segments for the three and six months ended June 30, 2018 and 2017, in addition to reconciling Adjusted EBITDA to operating income (loss) in accordance with US GAAP (unaudited, in thousands):

	Three Months Ended June 30, 2018
	Operating Income(Loss)			Depreciation and Amortization		Stock-Based Compensation			Transaction Expenses (3)		Other (4)			Adjusted EBITDA
West	$	21,865		$	9,382	$	(95	)	$	—	$	606		$	31,758
Midwest		27,411			8,404		31			—		77			35,923
South		20,564			8,108		17			—		(287	)		28,402
East		24,397			4,717		3			—		246			29,363
Corporate and Other		(16,823	)		1,299		3,516			3,404		1,173			(7,431	)
Total	$	77,414		$	31,910	$	3,472		$	3,404	$	1,815		$	118,015
	Three Months Ended June 30, 2017 (6)
	Operating Income (Loss)			Depreciation and Amortization		Stock-Based Compensation			Transaction Expenses (3)		Other (4)			Adjusted EBITDA
Excluding Pre-Acquisition:
West	$	16,512		$	6,571	$	52		$	—	$	64		$	23,199
Midwest		15,412			4,966		86			—		(6	)		20,458
South		12,610			4,662		64			—		1,130			18,466
East		18,228			8,273		4			—		53			26,558
Corporate and Other		(93,229	)		437		1,123			85,464		321			(5,884	)
Total Excluding Pre-Acquisition	$	(30,467	)	$	24,909	$	1,329		$	85,464	$	1,562		$	82,797
Pre-Acquisition (1):
West	$	2,709		$	925	$	2		$	—	$	4		$	3,640
Midwest		10,637			2,001		14			—		34			12,686
South		5,739			1,441		9			—		110			7,299
East		(197	)		239		—			—		—			42
Corporate and Other		(2,550	)		96		461			286		(22	)		(1,729	)
Total Pre-Acquisition	$	16,338		$	4,702	$	486		$	286	$	126		$	21,938
Including Pre-Acquisition:
West	$	19,221		$	7,496	$	54		$	—	$	68		$	26,839
Midwest		26,049			6,967		100			—		28			33,144
South		18,349			6,103		73			—		1,240			25,765
East		18,031			8,512		4			—		53			26,600
Corporate and Other		(95,779	)		533		1,584			85,750		299			(7,613	)
Total Including Pre-Acquisition (2)	$	(14,129	)	$	29,611	$	1,815		$	85,750	$	1,688		$	104,735

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	Six Months Ended June 30, 2018
	Operating Income(Loss)			Depreciation and Amortization		Stock-Based Compensation			Transaction Expenses (3)		Other (4)			Adjusted EBITDA
Excluding Pre-Acquisition:
West	$	32,004		$	17,571	$	(32	)	$	—	$	639		$	50,182
Midwest		54,087			16,049		75			—		227			70,438
South		33,923			16,639		42			—		10,015			60,619
East		43,528			10,766		8			—		1,241			55,543
Corporate and Other		(31,934	)		2,419		7,058			5,952		1,282			(15,223	)
Total	$	131,608		$	63,444	$	7,151		$	5,952	$	13,404		$	221,559
	Six Months Ended June 30, 2017 (6)
	Operating Income (Loss)			Depreciation and Amortization		Stock-Based Compensation			Transaction Expenses (3)		Other (4)			Adjusted EBITDA
Excluding Pre-Acquisition:
West	$	17,933		$	11,214	$	52		$	—	$	224		$	29,423
Midwest		15,412			4,966		86			—		(6	)		20,458
South		18,528			6,594		64			—		1,130			26,316
East		33,196			17,153		4			—		209			50,562
Corporate and Other		(101,508	)		586		2,856			87,078		310			(10,678	)
Total Excluding Pre-Acquisition	$	(16,439	)	$	40,513	$	3,062		$	87,078	$	1,867		$	116,081
Pre-Acquisition (5):
West	$	9,525		$	3,694	$	8		$	—	$	4		$	13,231
Midwest		34,819			11,952		51			—		34			46,856
South		25,086			5,693		35			—		184			30,998
East		(1,072	)		952		—			—		—			(120	)
Corporate and Other		(8,811	)		371		1,631			286		527			(5,996	)
Total Pre-Acquisition	$	59,547		$	22,662	$	1,725		$	286	$	749		$	84,969
Including Pre-Acquisition:
West	$	27,458		$	14,908	$	60		$	—	$	228		$	42,654
Midwest		50,231			16,918		137			—		28			67,314
South		43,614			12,287		99			—		1,314			57,314
East		32,124			18,105		4			—		209			50,442
Corporate and Other		(110,319	)		957		4,487			87,364		837			(16,674	)
Total Including Pre-Acquisition (2)	$	43,108		$	63,175	$	4,787		$	87,364	$	2,616		$	201,050

(1) Figures are for Isle for April 2017. Such figures were prepared by 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. Such figures are based on the unaudited internal financial statements and have not been reviewed by the Company’s auditors and do not conform to GAAP.

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

(3) Transaction expenses represent costs related to the acquisition of Isle for the three and six months ended June 30, 2017 and costs primarily related to the acquisitions of Grand Victoria Casino and Tropicana Entertainment Inc. for the three and six months ended June 30, 2018.

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(4) Other is comprised of severance expense, (gain) loss on the sale or disposal of property and equipment, equity in income (loss) of unconsolidated affiliate and other non-cash regulatory gaming assessments for the three and six months ended June 30, 2018 and 2017. Also included are costs associated with the sales of Vicksburg and Presque Isle Downs for the three and six months ended June 30, 2018 and the failed sale of Lake Charles for the three and six months ended June 30, 2017. In conjunction with the announced sale of Vicksburg, an impairment charge totaling $9.8 million was recorded for the six months ended June 30, 2018.

(5) Figures are for Isle for the four months ended April 30, 2017. Such figures were prepared by 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. 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.

(6) The prior period presentation has been adjusted for the adoption 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.

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.

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, servicing our outstanding indebtedness and funding the recently announced acquisitions. During the remainder of 2018, we plan to spend $94.8 million on capital expenditures and $61.4 million to pay interest on our outstanding indebtedness. However, we expect that our capital requirements and interest on our outstanding debt will increase significantly following the consummation of the acquisition of Tropicana Entertainment and the Grand Victoria Casino and the related incurrence of debt and obligation to pay annual rent in an initial amount of approximately $110 million under the master lease with respect to certain of the Tropicana properties. We also expect that our capital expenditures will increase significantly following the acquisition of Tropicana Entertainment and the Grand Victoria Casino and the related increase in the number of properties in our portfolio.  We funded the $327.5 million of cash consideration for the acquisition of the Grand Victoria Casino using cash from ongoing operations and borrowings under our revolving credit facility and we intend to fund cash consideration of approximately $640 million payable by us in the Tropicana transaction and repay debt outstanding under Tropicana’s credit facility with cash generated from our current operations, 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 substantially concurrently with the consummation of the Tropicana Acquisition and extend the maturity of the revolving credit facility to the fifth anniversary of the effective date of such increase. 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 June 30, 2018, we had consolidated cash and cash equivalents of $202.0 million, excluding restricted cash. At June 30, 2017, we had consolidated cash and cash equivalents of $134.6 million, excluding restricted cash. This increase in cash was primarily due to cash generated from operations for the six months ended June 30, 2018.

Operating Cash Flow.  For the six months ended June 30, 2018, cash flows provided by operating activities totaled $148.5 million compared to $3.0 million for the same prior year period. The increase in operating cash was primarily due to cash generated from operations combined with changes in the balance sheet accounts in the normal course of business. Additionally, significant payments were made during the six months ended 2017 in conjunction with the acquisition of Isle.

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Investing Cash Flow and Capital Expenditures.  Net cash flows used in investing activities totaled $69.3 million for the six months ended June 30, 2018 compared to $1,342.9 million for the same prior year period. Net cash flows used in investing activities in the six months ended June 30, 2018 were primarily due to $55.2 million in capital expenditures for various property enhancement and maintenance projects along with equipment purchases. Net cash flows used in investing activities for the six months ended June 30, 2017 consisted of $1,313.1 million related to funds used in the acquisition of Isle which closed on May 1, 2017, and $29.8 million in capital expenditures for various property enhancement and maintenance projects and equipment purchases.

Financing Cash Flow.  Net cash used for financing activities for the six months ended June 30, 2018 totaled $10.3 million compared to $1,412.5 million net cash provided by financing activities in the same prior year period. The cash used for financing activities for the six months ended June 30, 2018 was principally due to $9.7 million of net taxes paid related to the net share settlement of equity awards. During the six months ended June 30, 2017, cash provided by financing activities consisted primarily of $1,450.0 million and $375.0 million of proceeds from the issuance of the credit facility and 6% Senior Notes, respectively, partially offset by payments of $422.3 million on our credit facility in conjunction with our refinancing of debt in May of 2017.  

Debt Obligations

Term Loan and Revolving Credit Facility

In April 2017, the Company entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto dated as of April 17, 2017 (the “Credit Facility”), consisting of a $1.45 billion term loan facility (the “Term Loan Facility” or “Term Loan”) and a $300.0 million revolving credit facility (the “Revolving Credit Facility”). The Company’s obligations under the Revolving Credit Facility will mature on April 17, 2022. The Company’s obligations under the Term Loan Facility will mature on April 17, 2024. The Company was required to make quarterly principal payments in an amount equal to $3.6 million on the 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. In addition, the Company is required to make mandatory payments of amounts outstanding under the Credit Facility with the proceeds of certain casualty events, debt issuances, and asset sales and, depending on its consolidated total leverage ratio, the Company may be required to apply a portion of its excess cash flow to repay amounts outstanding under the Credit Facility.

As of June 30, 2018, the Company had $956.8 million outstanding on the Term Loan. There were no borrowings outstanding under the Revolving Credit Facility as of June 30, 2018. The Company had $290.9 million of available borrowing capacity, after consideration of $9.1 million in outstanding letters of credit, under its Revolving Credit Facility as of June 30, 2018.

The interest rate per annum applicable to loans under the Revolving Credit Facility are, at our option, either LIBOR plus a margin ranging from 1.75% to 2.50% or  a base rate plus a margin ranging from 0.75% to 1.50%, which margin is based on our total leverage ratio. The interest rate per annum applicable to the loans under the Term Loan Facility is, at our option, either LIBOR plus 2.25%, or a base rate plus 1.25%; provided, however, that in no event will LIBOR be less than zero or the base rate be less than 1.00% over the term of the Term Loan Facility or the Revolving Credit Facility. Additionally, the Company pays a commitment fee on the unused portion of the Revolving Credit Facility in the amount of 0.50% per annum. At June 30, 2018, the weighted average interest rate on the Term Loan was 4.1% based upon the weighted average interest rate of borrowings outstanding during the six months ended June 30, 2018.

Senior Notes

6% Senior Notes

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”) 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. 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 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.

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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.

7% 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.

As of June 30, 2018 we were in compliance with all covenants under the Credit Facility, 6% Senior Notes, and 7% Senior Notes.

Contractual Obligations

There have been no material changes for the six months ended June 30, 2018 to our contractual obligations as disclosed in our Annual Report on Form 10‑K for the year ended December 31, 2017.

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 10 to our unaudited consolidated financial statements, both of which are included elsewhere in this report. In addition, new competition may have a material adverse effect on our revenues, and could have a similar adverse effect on our liquidity. See “Part I, Item 1A. Risk Factors—Risks Related to Our Business” which is included in our Annual Report on Form 10-K for the year ended December 31, 2017 and “Part II, Item IA. Risk Factors” which is included in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2018.

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. Except as described in footnotes 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. We have not substantively changed the application of our policies and there have been no material changes in assumptions or estimation techniques used as compared to prior periods.

Off‑Balance Sheet Arrangements

We are not party to any off‑balance sheet arrangements.

Cautionary Statement Regarding Forward‑Looking Information

This report includes “forward‑looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward‑looking statements include statements regarding our strategies, objectives and plans for future development or acquisitions of properties or operations, as well as expectations, future operating results and other information that is not historical information. 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;

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• 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 disposition of Presque Isle Downs and Nemacolin 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 such development and acquisitions, including the acquisition of Tropicana Entertainment and the Grand Victoria Casino and the development of Pompano; and

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

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

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

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

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

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

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

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

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

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

• changes in interest rates and capital and credit markets;

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

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

• construction factors relating to 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, natural disasters and other catastrophic events;

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

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• 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 Nemacolin 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, in the case of the dispositions, 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

• 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 QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. We are exposed to changes in interest rates primarily from variable rate long‑term debt arrangements. At June 30, 2018, interest on borrowings under our Credit Facility was subject to fluctuation based on changes in short-term interest rates.

As of June 30, 2018, our long‑term variable‑rate borrowings totaled $956.8 million under the Term Loan and represented approximately 43% of our long‑term debt compared to 67% of our long‑term debt as of June 30, 2017. During the six months ended June 30, 2018, the weighted average interest rates on our variable and fixed rate debt were 4.1% and 6.3%, respectively.

The Company evaluates its exposure to market risk by monitoring interest rates in the marketplace and has, on occasion, utilized derivative financial instruments to help manage this risk. The Company does not utilize derivative financial instruments for trading purposes. There were no material quantitative changes in our market risk exposure, or how such risks are managed, for the three months ended June 30, 2018.

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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 disclosure

(b) Changes in Internal Controls

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.

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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.

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. There have been no material changes to those risk factors during the three months ended June 30, 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.

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Delay or failure to complete the Tropicana Acquisition or dispositions would prevent the Company from realizing the anticipated benefits of the transactions.

Any delay in completing the Tropicana Acquisition 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 business of Tropicana. In addition, the market price of our common stock may reflect various market assumptions as to whether and when the Tropicana Acquisition and dispositions will be completed. Consequently, the completion of, the failure to complete, or any delay in the completion of the Tropicana Acquisition or dispositions could result in significant changes in the market price of our common stock.

The acquisition of Tropicana and the sale of Presque Isle Downs 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 Tropicana Acquisition.

Completion of each of the Tropicana Acquisition and dispositions is conditioned upon the receipt of certain governmental approvals, including, without limitation, gaming regulatory. 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.  The waiting period under the Hart-Scott-Rodino Antitrust Improvement Acts of 1976, as amended, has been terminated with respect to the Tropicana Acquisition and the Presque Isle Downs disposition.  

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. Further, we have incurred and will continue to incur significant costs, such as legal, accounting, and similar costs, relating to the Tropicana Acquisition. We will be required to pay such costs whether or not the acquisition is consummated.

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

Our obligation to consummate the Tropicana Acquisition 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 agreement governing the acquisition.

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.

The pending Tropicana Acquisition and dispositions may be disruptive to our business.

Whether or not the Tropicana Acquisition or dispositions are completed, the pendency of the transactions could cause disruptions in our business and the business of Tropicana, 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 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.

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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 of the acquired properties 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 the expected 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.

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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 our borrowing capacity under our revolving credit facility will be increased from $300 million to $500 million effective at the time of the consummation of the Tropicana Acquisition and that we will have the ability to incur additional debt under the increased facility revolving credit facility. We incurred debt under our revolving credit facility to purchase Elgin and may be required to incur indebtedness in excess of the $600 million of committed financing to fund the consideration payable under the Tropicana Acquisition. In addition, we may incur debt to finance 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. 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 our historic interest expense and other obligations associated with financing.

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.

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ITEM 6. EXHIBITS.

Exhibit Number	Description of Exhibit	Method of Filing
2.1	Agreement and Plan of Merger by and among Eldorado Resorts, Inc., Delta Merger Sub, Inc., GLP Capital, L.P. and Tropicana Entertainment Inc., dated as of April 15, 2018	Previously filed on Form 8-K filed on April 16, 2018.
2.2	Interest Purchase Agreement by and among MGM Elgin Sub, Inc., Illinois RBG, L.L.C., Eldorado Resorts, Inc., Elgin Holdings I LLC, Elgin Holdings II LLC, Elgin Riverboat Resort-Riverboat Casino and MGM Resorts International, dated as of April 15, 2018	Previously filed on Form 8-K filed on April 16, 2018.
3.1	Certificate of Amendment to Articles of Incorporation, dated June 28, 2018	Filed herewith.
4.1	Fifth Supplemental Indenture, dated as of June 18, 2018, by and among Eldorado Resorts, Inc., the guarantors party thereto and U.S. Bank National Association, as Trustee, under the 2023 Notes Indenture	Filed herewith.
4.2	Second Supplemental Indenture, dated as of June 18, 2018, by and among Eldorado Resorts, Inc., the guarantors party thereto and U.S. Bank National Association, as Trustee, under the 2025 Notes Indenture	Filed herewith.
4.3	Sixth Supplemental Indenture, dated as of August 7, 2018, by and among Eldorado Resorts, Inc., the guarantors party thereto and U.S. Bank National Association, as Trustee, under the 2023 Notes Indenture	Filed herewith.
4.4	Third Supplemental Indenture, dated as of August 7, 2018, by and among Eldorado Resorts, Inc., the guarantors party thereto and U.S. Bank National Association, as Trustee, under the 2025 Notes Indenture	Filed herewith.
10.1	Amendment Agreement No. 2, dated June 6, 2018, by and between Eldorado Resorts, Inc. and JPMorgan Chase, N.A., as administrative agent in connection with the Credit Agreement, dated as of April 17, 2017	Filed herewith.
31.1	Certification of Gary L. Carano pursuant to Rule 13a‑14a and Rule 15d‑14(a)	Filed herewith.
31.2	Certification of Thomas R. Reeg pursuant to Rule 13a‑14a and Rule 15d‑14(a)	Filed herewith.
32.1	Certification of Gary L. Carano in accordance with 18 U.S.C. Section 1350	Filed herewith.
32.2	Certification of Thomas R. Reeg in accordance with 18 U.S.C. Section 1350	Filed herewith.
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.

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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: August 7, 2018	/s/ Gary L. Carano
	Gary L. Carano
	Chief Executive Officer and Chairman of the Board
Date: August 7, 2018	/s/ Thomas R. Reeg
	Thomas R. Reeg
	President and Chief Financial Officer
	(Principal Financial Officer)

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