UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10‑Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2019
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period to
Commission File No. 001‑36629
ELDORADO RESORTS, INC.
(Exact name of registrant as specified in its charter)
Nevada |
46‑3657681 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
100 West Liberty Street, Suite 1150, Reno, Nevada 89501
(Address and zip code of principal executive offices)
(775) 328‑0100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
Large accelerated filer |
☒ |
|
Accelerated filer |
☐ |
Non‑accelerated filer |
☐ |
|
Smaller reporting company |
☐ |
Emerging growth company |
☐ |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒
Title of each class |
Trading Symbol |
Name of each exchange on which registered |
Common Stock, $.00001, par value |
ERI |
NASDAQ Stock Market |
The number of shares of the Registrant’s Common Stock, $0.00001 par value per share, outstanding as of May 3, 2019 was 77,472,148.
QUARTERLY REPORT FOR THE THREE MONTHS ENDED
MARCH 31, 2019
TABLE OF CONTENTS
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Page |
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2 |
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Item 1. |
|
2 |
|
|
Consolidated Balance Sheets at March 31, 2019 (unaudited) and December 31, 2018 |
|
2 |
|
Consolidated Statements of Income for the Three Months Ended March 31, 2019 and 2018 (unaudited) |
|
3 |
|
|
4 |
|
|
|
5 |
|
|
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (unaudited) |
|
6 |
|
Condensed Notes to Unaudited Consolidated Financial Statements (unaudited) |
|
7 |
Item 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|
38 |
Item 3. |
|
56 |
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Item 4. |
|
56 |
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|
57 |
||
Item 1. |
|
57 |
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Item 1A. |
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57 |
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Item 2. |
|
57 |
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Item 3. |
|
57 |
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Item 4. |
|
57 |
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Item 5. |
|
57 |
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Item 6. |
|
58 |
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|
59 |
1
ELDORADO RESORTS, INC.
(dollars in thousands)
|
|
March 31, |
|
|
December 31, |
|
||||
|
|
2019 |
|
|
2018 |
|
||||
|
|
|
(unaudited) |
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
216,883 |
|
|
$ |
|
230,752 |
|
Restricted cash and investments |
|
|
|
25,236 |
|
|
|
|
24,892 |
|
Marketable securities |
|
|
|
16,899 |
|
|
|
|
16,957 |
|
Accounts receivable, net |
|
|
|
65,604 |
|
|
|
|
60,169 |
|
Due from affiliates |
|
|
|
3,130 |
|
|
|
|
327 |
|
Inventories |
|
|
|
20,775 |
|
|
|
|
20,595 |
|
Income taxes receivable |
|
|
|
2,009 |
|
|
|
|
15,731 |
|
Prepaid expenses |
|
|
|
32,454 |
|
|
|
|
48,002 |
|
Assets held for sale |
|
|
|
— |
|
|
|
|
155,771 |
|
Total current assets |
|
|
|
382,990 |
|
|
|
|
573,196 |
|
Investment in and advances to unconsolidated affiliates |
|
|
|
132,240 |
|
|
|
|
1,892 |
|
Property and equipment, net |
|
|
|
2,870,120 |
|
|
|
|
2,882,606 |
|
Gaming licenses and other intangibles, net |
|
|
|
1,354,364 |
|
|
|
|
1,362,006 |
|
Goodwill |
|
|
|
1,008,316 |
|
|
|
|
1,008,316 |
|
Other assets, net |
|
|
|
366,488 |
|
|
|
|
83,446 |
|
Total assets |
|
$ |
|
6,114,518 |
|
|
$ |
|
5,911,462 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
|
415 |
|
|
$ |
|
462 |
|
Accounts payable |
|
|
|
89,932 |
|
|
|
|
58,524 |
|
Accrued property, gaming and other taxes |
|
|
|
53,847 |
|
|
|
|
51,931 |
|
Accrued payroll and related |
|
|
|
70,501 |
|
|
|
|
87,332 |
|
Accrued interest |
|
|
|
39,052 |
|
|
|
|
42,780 |
|
Income taxes payable |
|
|
|
12 |
|
|
|
|
47,475 |
|
Accrued other liabilities |
|
|
|
135,585 |
|
|
|
|
102,982 |
|
Liabilities related to assets held for sale |
|
|
|
— |
|
|
|
|
10,691 |
|
Total current liabilities |
|
|
|
389,344 |
|
|
|
|
402,177 |
|
Long-term financing obligation to GLPI |
|
|
|
962,505 |
|
|
|
|
959,835 |
|
Long-term debt, less current portion |
|
|
|
3,057,151 |
|
|
|
|
3,261,273 |
|
Deferred income taxes |
|
|
|
204,022 |
|
|
|
|
200,010 |
|
Other long-term liabilities |
|
|
|
438,232 |
|
|
|
|
59,014 |
|
Total liabilities |
|
|
|
5,051,254 |
|
|
|
|
4,882,309 |
|
Commitments and contingencies (Note 14) |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY: |
|
|
|
|
|
|
|
|
|
|
Common stock, 200,000,000 shares authorized, 77,439,165 and 77,215,066 issued and outstanding, net of treasury shares, par value $0.00001 as of March 31, 2019 and December 31, 2018, respectively |
|
|
|
1 |
|
|
|
|
1 |
|
Paid-in capital |
|
|
|
748,702 |
|
|
|
|
748,076 |
|
Retained earnings |
|
|
|
323,691 |
|
|
|
|
290,206 |
|
Treasury stock at cost, 223,823 shares held at March 31, 2019 and December 31, 2018 |
|
|
|
(9,131 |
) |
|
|
|
(9,131 |
) |
Accumulated other comprehensive income |
|
|
|
1 |
|
|
|
|
1 |
|
Total stockholders’ equity |
|
|
|
1,063,264 |
|
|
|
|
1,029,153 |
|
Total liabilities and stockholders’ equity |
|
$ |
|
6,114,518 |
|
|
$ |
|
5,911,462 |
|
The accompanying condensed notes are an integral part of these consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(unaudited)
|
|
Three Months Ended |
|
|||||||
|
|
March 31, |
|
|||||||
|
|
2019 |
|
|
2018 |
|
||||
REVENUES: |
|
|
|
|
|
|
|
|
|
|
Casino and pari-mutuel commissions |
|
$ |
|
470,851 |
|
|
$ |
|
343,528 |
|
Food and beverage |
|
|
|
75,209 |
|
|
|
|
52,198 |
|
Hotel |
|
|
|
64,691 |
|
|
|
|
30,741 |
|
Other |
|
|
|
25,072 |
|
|
|
|
13,725 |
|
Net revenues |
|
|
|
635,823 |
|
|
|
|
440,192 |
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
Casino and pari-mutuel commissions |
|
|
|
210,306 |
|
|
|
|
169,551 |
|
Food and beverage |
|
|
|
60,385 |
|
|
|
|
44,776 |
|
Hotel |
|
|
|
23,650 |
|
|
|
|
12,506 |
|
Other |
|
|
|
11,249 |
|
|
|
|
7,405 |
|
Marketing and promotions |
|
|
|
32,301 |
|
|
|
|
21,301 |
|
General and administrative |
|
|
|
119,888 |
|
|
|
|
74,202 |
|
Corporate |
|
|
|
16,754 |
|
|
|
|
11,569 |
|
Impairment charges |
|
|
|
958 |
|
|
|
|
9,815 |
|
Depreciation and amortization |
|
|
|
57,757 |
|
|
|
|
31,534 |
|
Total operating expenses |
|
|
|
533,248 |
|
|
|
|
382,659 |
|
Gain (loss) on sale or disposal of property and equipment |
|
|
|
22,318 |
|
|
|
|
(706 |
) |
Transaction expenses |
|
|
|
(1,894 |
) |
|
|
|
(2,548 |
) |
Income (loss) from unconsolidated affiliates |
|
|
|
605 |
|
|
|
|
(85 |
) |
Operating income |
|
|
|
123,604 |
|
|
|
|
54,194 |
|
OTHER EXPENSE: |
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
|
(73,510 |
) |
|
|
|
(31,251 |
) |
Unrealized loss on restricted investments |
|
|
|
(1,460 |
) |
|
|
|
— |
|
Total other expense |
|
|
|
(74,970 |
) |
|
|
|
(31,251 |
) |
Income before income taxes |
|
|
|
48,634 |
|
|
|
|
22,943 |
|
Provision for income taxes |
|
|
|
(10,405 |
) |
|
|
|
(2,088 |
) |
Net income |
|
$ |
|
38,229 |
|
|
$ |
|
20,855 |
|
Net income per share of common stock: |
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
|
0.49 |
|
|
$ |
|
0.27 |
|
Diluted |
|
$ |
|
0.49 |
|
|
$ |
|
0.27 |
|
Weighted average basic shares outstanding |
|
|
|
77,567,147 |
|
|
|
|
77,353,730 |
|
Weighted average diluted shares outstanding |
|
|
|
78,589,110 |
|
|
|
|
78,080,049 |
|
The accompanying condensed notes are an integral part of these consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|||||||
|
2019 |
|
|
2018 |
|
||||
Net income |
$ |
|
38,229 |
|
|
$ |
|
20,855 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
— |
|
|
|
|
— |
|
Comprehensive income, net of tax |
$ |
|
38,229 |
|
|
$ |
|
20,855 |
|
The accompanying condensed notes are an integral part of these consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(dollars in thousands)
(unaudited)
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
Treasury Stock |
|
|
|
|
|
|
||||||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Paid-in Capital |
|
|
Retained Earnings |
|
|
Accumulated Other Comprehensive Income |
|
|
Shares |
|
|
Amount |
|
|
Total |
|
|||||||||||||||
Balance, December 31, 2018 |
|
|
77,438,889 |
|
|
$ |
|
1 |
|
|
$ |
|
748,076 |
|
|
$ |
|
290,206 |
|
|
$ |
|
1 |
|
|
|
|
223,823 |
|
|
$ |
|
(9,131 |
) |
|
$ |
|
1,029,153 |
|
Cumulative change in accounting principle, net of tax |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(4,744 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(4,744 |
) |
Issuance of restricted stock units |
|
|
330,641 |
|
|
|
|
— |
|
|
|
|
4,948 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
4,948 |
|
Net income |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
38,229 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
38,229 |
|
Shares withheld related to net share settlement of stock awards |
|
|
(106,542 |
) |
|
|
|
— |
|
|
|
|
(4,322 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(4,322 |
) |
Balance, March 31, 2019 |
|
|
77,662,988 |
|
|
$ |
|
1 |
|
|
$ |
|
748,702 |
|
|
$ |
|
323,691 |
|
|
$ |
|
1 |
|
|
|
|
223,823 |
|
|
$ |
|
(9,131 |
) |
|
$ |
|
1,063,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017 |
|
|
76,825,966 |
|
|
$ |
|
— |
|
|
$ |
|
746,547 |
|
|
$ |
|
194,971 |
|
|
$ |
|
79 |
|
|
|
|
— |
|
|
$ |
|
— |
|
|
$ |
|
941,597 |
|
Issuance of restricted stock units |
|
|
645,047 |
|
|
|
|
— |
|
|
|
|
3,679 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
3,679 |
|
Net income |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
20,855 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
20,855 |
|
Shares withheld related to net share settlement of stock awards |
|
|
(229,898 |
) |
|
|
|
— |
|
|
|
|
(7,502 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(7,502 |
) |
Balance, March 31, 2018 |
|
|
77,241,115 |
|
|
$ |
|
— |
|
|
|
|
742,724 |
|
|
$ |
|
215,826 |
|
|
$ |
|
79 |
|
|
|
|
— |
|
|
|
|
— |
|
|
$ |
|
958,629 |
|
The accompanying condensed notes are an integral part of these consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
|
|
Three Months Ended |
|
|||||||
|
|
March 31, |
|
|||||||
|
|
2019 |
|
|
2018 |
|
||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
38,229 |
|
|
$ |
|
20,855 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
57,757 |
|
|
|
|
31,534 |
|
Amortization of deferred financing costs, discount and debt premium |
|
|
|
4,547 |
|
|
|
|
1,446 |
|
Deferred revenue |
|
|
|
(1,397 |
) |
|
|
|
— |
|
Unrealized loss on restricted investment |
|
|
|
1,460 |
|
|
|
|
— |
|
Stock compensation expense |
|
|
|
4,948 |
|
|
|
|
3,679 |
|
(Gain) loss on sale or disposal of property and equipment |
|
|
|
(22,318 |
) |
|
|
|
706 |
|
Impairment charges |
|
|
|
958 |
|
|
|
|
9,815 |
|
Provision for deferred income taxes |
|
|
|
5,224 |
|
|
|
|
1,450 |
|
Other |
|
|
|
215 |
|
|
|
|
483 |
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
(3,933 |
) |
|
|
|
9,491 |
|
Prepaid expenses and other assets |
|
|
|
14,331 |
|
|
|
|
2,042 |
|
Accrued interest |
|
|
|
(6,562 |
) |
|
|
|
7,539 |
|
Income taxes payable |
|
|
|
(26,398 |
) |
|
|
|
4,199 |
|
Accounts payable and accrued other liabilities |
|
|
|
(1,621 |
) |
|
|
|
(15,232 |
) |
Net cash provided by operating activities |
|
|
|
65,440 |
|
|
|
|
78,007 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment, net |
|
|
|
(38,360 |
) |
|
|
|
(21,271 |
) |
Purchase of restricted investments |
|
|
|
(80 |
) |
|
|
|
— |
|
Proceeds from sale of property and equipment, net of cash sold |
|
|
|
167,945 |
|
|
|
|
150 |
|
Net cash provided by (used in) investing activities |
|
|
|
129,505 |
|
|
|
|
(21,121 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
Net payments under Revolving Credit Facility |
|
|
|
(205,000 |
) |
|
|
|
— |
|
Debt issuance costs |
|
|
|
(386 |
) |
|
|
|
(304 |
) |
Taxes paid related to net share settlement of equity awards |
|
|
|
(4,322 |
) |
|
|
|
(7,502 |
) |
Payments on other long-term payables |
|
|
|
(118 |
) |
|
|
|
(170 |
) |
Net cash used in financing activities |
|
|
|
(209,826 |
) |
|
|
|
(7,976 |
) |
|
|
|
|
|
|
|
|
|
|
|
(Decrease) Increase in cash, cash equivalents and restricted cash |
|
|
|
(14,881 |
) |
|
|
|
48,910 |
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
246,691 |
|
|
|
|
147,749 |
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
|
231,810 |
|
|
$ |
|
196,659 |
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO AMOUNTS REPORTED WITHIN THE CONDENSED CONSOLIDATED BALANCE SHEETS: |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
216,883 |
|
|
$ |
|
183,138 |
|
Restricted cash |
|
|
|
7,892 |
|
|
|
|
3,659 |
|
Restricted and escrow cash included in other noncurrent assets |
|
|
|
7,035 |
|
|
|
|
9,862 |
|
Total cash, cash equivalents and restricted cash |
|
$ |
|
231,810 |
|
|
$ |
|
196,659 |
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
|
62,885 |
|
|
$ |
|
21,814 |
|
Income taxes paid , net |
|
|
|
38,898 |
|
|
|
|
186 |
|
NON-CASH FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
Payables for capital expenditures |
|
|
|
23,048 |
|
|
|
|
7,642 |
|
The accompanying condensed notes are an integral part of these consolidated financial statements.
6
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Organization and Basis of Presentation
Organization
The accompanying unaudited consolidated financial statements include the accounts of Eldorado Resorts, Inc. (“ERI” or the “Company”), a Nevada corporation formed in September 2013, and its consolidated subsidiaries. The Company acquired Mountaineer, Presque Isle Downs and Scioto Downs in September 2014 pursuant to a merger with MTR Gaming Group, Inc. (“MTR Gaming”) and in November 2015 it acquired Circus Reno and the interests in the Silver Legacy that it did not own prior to such date.
On May 1, 2017, the Company completed its acquisition of Isle of Capri Casinos, Inc. pursuant to the Agreement and Plan of Merger 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.
On August 7, 2018, the Company completed its acquisition of the outstanding partnership interests of Elgin Riverboat Resort – Riverboat Casino d/b/a Grand Victoria Casino, an Illinois partnership (“Elgin”), the owner of Grand Victoria Casino, located in Elgin, Illinois (the “Elgin Acquisition”). On October 1, 2018, we completed our acquisition of Tropicana Entertainment, Inc. (“Tropicana”), adding seven properties to our portfolio (the “Tropicana Acquisition”).
On January 11, 2019 and March 8, 2019, respectively, the Company closed on its sales of Presque Isle Downs & Casino (“Presque Isle Downs”) and Lady Luck Casino Nemacolin (“Nemacolin”), which are both located in Pennsylvania.
As of March 31, 2019, we owned and operated the following properties:
|
• |
Eldorado Resort Casino Reno (“Eldorado Reno”)—A 814-room hotel, casino and entertainment facility connected via an enclosed skywalk to Silver Legacy and Circus Reno located in downtown Reno, Nevada that includes 1,117 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 1,119 slot machines, 48 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 722 slot machines; |
|
• |
Eldorado Resort Casino Shreveport (“Eldorado Shreveport”)—A 403-room, all suite art deco-style hotel and tri-level riverboat dockside casino situated on the Red River in Shreveport, Louisiana that includes 1,388 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 1,486 slot machines, 36 table games and a 10-table poker room; |
|
• |
Eldorado Gaming Scioto Downs (“Scioto Downs”)—A modern “racino” offering 2,238 video lottery terminals (“VLTs”), harness racing and a 118-room third party hotel connected to Scioto Downs located 15 minutes from downtown Columbus, Ohio. |
|
• |
Isle Casino Hotel—Black Hawk (“Isle Black Hawk”)—A land-based casino on an approximately 10-acre site in Black Hawk, Colorado that includes 966 slot machines, 28 table games, a 10-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 442 slot machines, seven table games and a 164-room hotel with a parking structure connecting Isle Black Hawk and Lady Luck Black Hawk; |
7
|
• |
Isle Casino Bettendorf (“Bettendorf”)—A land-based single-level casino located off Interstate 74 in Bettendorf, Iowa that includes 969 slot machines and 15 table games with two hotel towers with 509 hotel rooms; |
|
• |
Isle Casino Waterloo (“Waterloo”)—A single-level land-based casino in Waterloo, Iowa that includes 939 slot machines, 23 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 1,164 slot machines, 34 table games, 11 poker tables, and two hotels offering 493 rooms; |
|
• |
Isle of Capri Casino Lula (“Lula”)—Two dockside casinos in Lula, Mississippi with 862 slot machines and 25 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 607 slot machines 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 881 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 863 slot machines, 20 table games and four poker tables; |
|
• |
Lady Luck Casino Caruthersville (“Caruthersville”)—A riverboat casino located along the Mississippi River in Caruthersville, Missouri that includes 507 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 938 slot machines and 13 table games; |
|
• |
Tropicana Casino and Resort, Atlantic City (“Trop AC”)—A casino and resort situated on approximately 15 acres with approximately 660 feet of ocean frontage in Atlantic City, New Jersey that includes 2,464 slot machines, 107 table games, 18 poker tables and 2,366 hotel rooms; |
|
• |
Tropicana Evansville (“Evansville”)—A casino hotel and entertainment complex in Evansville, Indiana featuring 1,128 slot machines, 33 table games, eight poker tables and two on-site hotels with a total of 338 rooms; |
|
• |
Lumière Place Casino (“Lumière”)—A casino located on approximately 20 acres, located in historic downtown St. Louis, Missouri near business and entertainment districts and overlooks the Mississippi River with 1,401 slot machines, 48 table games, 10 poker tables and 494 hotel rooms; |
|
• |
Tropicana Laughlin Hotel and Casino (“Laughlin”)—A casino in Laughlin, Nevada that includes 895 slot machines, 20 table games and 1,487 hotel rooms; |
|
• |
MontBleu Casino Resort & Spa (“MontBleu”)—A casino situated on approximately 21 acres in South Lake Tahoe, Nevada surrounded by the Sierra Nevada Mountains featuring 474 slot machines, 17 table games and 438 hotel rooms; |
|
• |
Trop Casino Greenville (“Greenville”)—A landside gaming facility located in Greenville, Mississippi with 590 slot machines, 10 table games and 40 hotel rooms; |
|
• |
Belle of Baton Rouge Casino & Hotel (“Baton Rouge”)—A dockside riverboat situated on approximately 23 acres on the Mississippi River in the downtown historic district of Baton Rouge featuring 773 slot machines, 14 table games and 288 hotel rooms; and |
|
• |
Grand Victoria Casino (“Elgin”)—A casino located in Elgin, Illinois featuring 1,088 slot machines and 30 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.
8
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 executive decision maker of our Company reviews operating results, assesses performance and makes decisions on a “significant market” basis. Management views each of our casinos as an operating segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, and their management and reporting structure. Prior to the Elgin and Tropicana acquisitions, the Company’s principal operating activities occurred in four geographic regions and reportable segments. Following the Elgin and Tropicana acquisitions, a fifth segment, Central, was added. The reportable segments are based on the similar characteristics of the operating segments within the regions in which they operate: West, Midwest, South, East, and Central. (See Note 16 for a listing of properties included in each segment).
The presentation of information herein for periods prior to our acquisitions of Elgin and Tropicana and after our acquisitions of Elgin and Tropicana are not fully comparable because the results of operations for Elgin and Tropicana are not included for periods prior to August 7, 2018 and October 1, 2018, respectively. Additionally, the Company closed on its sales of Presque Isle Downs and Nemacolin in January 2019 and March 2019, respectively. (See Note 5).
These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Recently Issued Accounting Pronouncements
Pronouncements Implemented in 2019
In February 2016 (as amended through December 2018), the FASB issued ASU No. 2016-02 codified as Accounting Standards Codification (“ASC”) 842, Leases, (“ASC 842”) which addresses the recognition and measurement of leases. Under the new guidance, for all leases, at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease. The liability is measured on a discounted basis. Lessees will also recognize a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to control the use of a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. The effective date is for the annual and interim periods beginning after December 15, 2018. ASC 842 requires a transition adoption election using either 1) a modified retrospective approach with periods prior to the adoption date being recast or 2) a prospective approach with a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption date with prior periods continuing to be reported under prior lease accounting guidance.
The Company adopted ASC 842 on January 1, 2019 using the prospective approach, and therefore, comparative periods will continue to be reported under prior lease accounting guidance consistent with previously issued financial statements. We elected the package of practical expedients permitted under the transition guidance within ASC 842, which among other things, allowed us to carry forward the historical lease identification, lease classification and treatment of initial direct costs for leases entered into prior to January 1, 2019. We also made an accounting policy election to not record short-term leases with an initial term of 12 months or less on the balance sheet for all classes of underlying assets. We have also elected to not adopt the hindsight practical expedient for determining lease terms.
Our operating leases, in which we are the lessee, are recorded on the balance sheet as a ROU asset with a corresponding lease liability. The lease liability will be remeasured each reporting period with a corresponding change to the ROU asset. ROU assets and lease liabilities for operating leases totaled $282.4 million and $287.1 million, respectively, as of March 31, 2019. The adoption of this guidance did not have an impact on net income; however, upon adoption we recorded a cumulative adjustment to our retained earnings of $4.7 million, net of tax, primarily related to the Company’s lease and management agreements at its Bettendorf location. (See Note 2 for more information). Adoption of this guidance did not have a material impact on the Company’s other financing leases.
9
Pronouncements to Be Implemented in Future Periods
In June 2016 (modified in November 2018), the FASB issued ASU No 2016-13, Financial Instruments – Credit Losses related to timing on recognizing impairment losses on financial assets. The new guidance lowers the threshold on when losses are incurred, from a determination that a loss is probable to a determination that a loss is expected. The change in guidance will be applicable to our evaluation of the CRDA investments (see Note 8). The guidance is effective for interim and annual periods beginning after December 15, 2019, and early adoption is allowed for interim and annual periods beginning after December 15, 2018. Adoption of the guidance requires a modified-retrospective approach and a cumulative adjustment to retained earnings to the first reporting period that the update is effective. We expect to adopt the new guidance on January 1, 2020 and currently we do not expect a cumulative effect on our Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). This generally means that an intangible asset is recognized for the software license and, to the extent that the payments attributable to the software license are made over time, a liability also is recognized. If a cloud computing arrangement does not include a software license, the entity should account for the arrangement as a service contract. This generally means that the fees associated with the hosting element (service) of the arrangement are expensed as incurred. The amendment is effective for annual and interim periods beginning after December 15, 2019, with early adoption allowed. We expect to adopt the new guidance on January 1, 2020 and are evaluating the qualitative and quantitative effects of the new guidance. We do not believe it will have a significant impact on our Consolidated Financial Statements.
In August 2018, the FASB issued ASU No 2018-14, Compensation –Retirement Benefits – Defined Benefit Plans – General. This amendment improves disclosures over defined benefit plans and is effective for interim and annual periods ending after December 15, 2020 with early adoption allowed. We anticipate adopting this amendment during the first quarter of 2021, and do not expect it to have a significant impact on our Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This amendment modifies the disclosure requirements for fair value measurements and is effective for annual and interim periods beginning after December 15, 2019, with early adoption allowed. The Company is evaluating the qualitative and quantitative effect the new guidance will have on our Consolidated Financial Statements.
Note 2. Leases
The Company’s management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset.
Finance and operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date. As the implicit rate is not determinable in most of the Company’s leases, management uses the Company’s incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expense for operating leases with minimum lease payments is recognized on a straight-line basis over the expected lease term.
The Company’s lease arrangements have lease and non-lease components. For leases in which the Company is the lessee, the Company accounts for the lease components and non-lease components as a single lease component for all classes of underlying assets. Leases, in which the Company is the lessor, are substantially all accounted for as operating leases and the lease components and non-lease components are accounted for separately, which is consistent with the Company’s historical accounting. Leases with an expected or initial term of 12 months or less are not accounted for on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.
The Company has operating and finance leases for various real estate and equipment. Certain of our lease agreements include rental payments based on a percentage of sales over specified contractual amounts, rental payments adjusted periodically for inflation and rental payments based on usage. The Company’s leases include options to extend the lease term one month to 60 years. Except for the GLPI Master Lease (see Note 10), the Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
10
Leases recorded on the balance sheet consist of the following (in thousands):
Leases |
|
Classification on the Balance Sheet |
|
March 31, 2019 |
|
||
Assets |
|
|
|
|
|
|
|
Operating lease ROU assets |
|
Other assets, net |
|
$ |
|
282,363 |
|
Finance lease ROU assets |
|
Property and equipment, net(1) |
|
$ |
|
949,839 |
|
Liabilities |
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
Operating |
|
Accrued other liabilities |
|
$ |
|
20,232 |
|
Finance |
|
Current portion of long-term debt |
|
$ |
|
314 |
|
Noncurrent |
|
|
|
|
|
|
|
Operating |
|
Other long-term liabilities |
|
$ |
|
266,898 |
|
Finance |
|
Long-term financing obligation and debt |
|
$ |
|
962,685 |
|
|
(1) |
Finance lease ROU assets are recorded net of accumulated depreciation of $8.1 million as of March 31, 2019. |
Other information related to lease terms and discount rates are as follows:
|
|
March 31, 2019 |
|
||
Weighted Average Remaining Lease Term |
|
|
|
|
|
Operating leases |
|
|
34.6 years |
|
|
Finance leases |
|
|
34.5 years |
|
|
Weighted Average Discount Rate |
|
|
|
|
|
Operating leases(1) |
|
|
7.1% |
|
|
Finance leases |
|
|
10.2% |
|
|
(1) |
Upon adoption of the new lease standard, discount rates used for existing operating leases were established on January 1, 2019. |
The components of lease expense are as follows (in thousands):
|
Three Months Ended |
|
|||
|
March 31, 2019 |
|
|||
Operating lease cost |
|
|
|
|
|
Operating lease cost |
$ |
|
|
7,456 |
|
Short-term and variable lease cost |
|
|
|
1,975 |
|
Finance lease cost |
|
|
|
|
|
Interest expense on lease liabilities |
|
|
|
24,603 |
|
Amortization of ROU assets |
|
|
|
2,511 |
|
Total lease cost |
$ |
|
|
36,545 |
|
Supplemental cash flow information related to leases is as follows (in thousands):
|
Three Months Ended |
|
|||
|
March 31, 2019 |
|
|||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
Operating cash flows for operating leases |
$ |
|
|
7,840 |
|
Operating cash flows for finance leases |
$ |
|
|
21,934 |
|
11
Maturities of lease liabilities are summarized as follows (in thousands):
|
|
Operating Leases |
|
|
Finance Leases |
|
||||
Year ending December 31, |
|
|
|
|
|
|
|
|
|
|
2019 (excluding the three months ended March 31, 2019) |
|
$ |
|
21,216 |
|
|
$ |
|
66,370 |
|
2020 |
|
|
|
24,331 |
|
|
|
|
89,227 |
|
2021 |
|
|
|
22,698 |
|
|
|
|
90,463 |
|
2022 |
|
|
|
21,754 |
|
|
|
|
91,745 |
|
2023 |
|
|
|
21,783 |
|
|
|
|
92,990 |
|
Thereafter |
|
|
|
832,524 |
|
|
|
|
3,506,672 |
|
Total future minimum lease payments |
|
|
|
944,306 |
|
|
|
|
3,937,467 |
|
Less: amount representing interest |
|
|
|
(657,176 |
) |
|
|
|
(3,394,568 |
) |
Present value of future minimum lease payments |
|
|
|
287,130 |
|
|
|
|
542,899 |
|
Less: current lease obligations |
|
|
|
(20,232 |
) |
|
|
|
(314 |
) |
Plus: residual values - GLPI |
|
|
|
— |
|
|
|
|
420,100 |
|
Long-term lease obligations |
|
$ |
|
266,898 |
|
|
$ |
|
962,685 |
|
Note 3. Revenue Recognition
The Company recognizes as casino revenue the net win from gaming activities, which is the difference between gaming wins and losses, not the total amount wagered. Progressive jackpots are accrued and charged to revenue at the time the obligation to pay the jackpot is established. Gaming revenues are recognized net of certain cash and free play incentives. Pari-mutuel commissions consist of commissions earned from thoroughbred and harness racing and importing of simulcast signals from other race tracks and are recognized at the time wagers are made. Such commissions are a designated portion of the wagering handle as determined by state racing commissions and are shown net of the taxes assessed by state and local agencies, as well as purses and other contractual amounts paid to horsemen associations. The Company recognizes revenues from fees earned through the exporting of simulcast signals to other race tracks at the time wagers are made and recorded on a gross basis. Such fees are based upon a predetermined percentage of handle as contracted with the other race tracks.
Hotel, food and beverage services have been determined to be separate, stand-alone performance obligations and are recorded as revenue as the good or service is transferred to the customer over the customer’s stay at the hotel or when the delivery is made for the food and beverage. Advance deposits for future hotel occupancy, convention space or food and beverage services contracts are recorded as deferred income until the revenue recognition criteria has been met. The Company also provides goods and services that may include multiple performance obligations, such as for packages, for which revenues are allocated on a pro rata basis based on each service's stand-alone selling price.
The Company offers programs at its properties whereby participating customers can accumulate points for wagering that can be redeemed for credits for free play on slot machines, lodging, food and beverage, merchandise and, in limited situations, cash. The incentives earned by customers under these programs are based on previous revenue transactions and represent separate performance obligations. Points earned, less estimated breakage, are recorded as a reduction of casino revenues at the standalone selling price of the points when earned based upon the retail value of the benefits, historical redemption rates and estimated breakage and recognized as departmental revenue based on where such points are redeemed upon fulfillment of the performance obligation. The player loyalty program liability represents a deferral of revenue until redemption occurs, which is typically less than one year.
The Company offers discretionary coupons and other discretionary complimentaries to customers outside of the player loyalty program. The retail value of complimentary food, beverage, hotel rooms and other services provided to customers is recognized as a reduction