10-Q 1 eri-10q_20170930.htm 10-Q eri-10q_20170930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

(Mark One)

☒

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

For the quarterly period ended September 30, 2017

OR

☐

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

For the transition period                 to                 

Commission File No. 001‑36629

ELDORADO RESORTS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

46‑3657681

(State or other jurisdiction of

incorporation or organization)

(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 November 2, 2017 was 76,824,595.

 

 

 

 

 

ELDORADO RESORTS, INC.

QUARTERLY REPORT FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2017

TABLE OF CONTENTS

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

Item 1.

FINANCIAL STATEMENTS

 

 

 

Consolidated Balance Sheets at September 30, 2017 (unaudited) and December 31, 2016

 

2

 

Consolidated Statements of Operations for the Three and Nine months Ended September 30, 2017 and 2016 (unaudited)

 

3

 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine months Ended September 30, 2017 and 2016 (unaudited)

 

4

 

Consolidated Statements of Cash Flows for the Nine months Ended September 30, 2017 and 2016 (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

 

53

Item 4.

CONTROLS AND PROCEDURES

 

53

PART II. OTHER INFORMATION

 

 

Item 1.

LEGAL PROCEEDINGS

 

54

Item 1A.

RISK FACTORS

 

54

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

56

Item 3.

DEFAULTS UPON SENIOR SECURITIES

 

56

Item 4.

MINE SAFETY DISCLOSURES

 

56

Item 5.

OTHER INFORMATION

 

56

Item 6.

EXHIBITS

 

57

SIGNATURES

 

58

 

1

 

PART I-FINANCIAL INFORMATION

Item 1.  Financial Statements.

ELDORADO RESORTS, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(unaudited)

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

134,903

 

 

$

 

61,029

 

Restricted cash

 

 

 

21,307

 

 

 

 

2,414

 

Marketable securities

 

 

 

17,461

 

 

 

 

—

 

Accounts receivable, net

 

 

 

33,129

 

 

 

 

14,694

 

Due from affiliates

 

 

 

71

 

 

 

 

—

 

Inventories

 

 

 

16,505

 

 

 

 

11,055

 

Prepaid income taxes

 

 

 

5,353

 

 

 

 

69

 

Prepaid expenses and other

 

 

 

28,749

 

 

 

 

12,492

 

Assets held for sale

 

 

 

143,496

 

 

 

 

—

 

Total current assets

 

 

 

400,974

 

 

 

 

101,753

 

PROPERTY AND EQUIPMENT, NET

 

 

 

1,446,354

 

 

 

 

612,342

 

GAMING LICENSES AND OTHER INTANGIBLES, NET

 

 

 

954,962

 

 

 

 

487,498

 

GOODWILL

 

 

 

746,482

 

 

 

 

66,826

 

NON-OPERATING REAL PROPERTY

 

 

 

18,069

 

 

 

 

14,219

 

OTHER ASSETS, NET

 

 

 

18,416

 

 

 

 

11,406

 

Total assets

 

$

 

3,585,257

 

 

$

 

1,294,044

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

 

1,068

 

 

$

 

4,545

 

Accounts payable

 

 

 

28,328

 

 

 

 

21,576

 

Due to affiliates

 

 

 

30

 

 

 

 

259

 

Accrued property, gaming and other taxes

 

 

 

40,772

 

 

 

 

18,790

 

Accrued payroll and related

 

 

 

57,814

 

 

 

 

14,588

 

Accrued interest

 

 

 

13,193

 

 

 

 

14,634

 

Deferred proceeds for assets held for sale

 

 

 

20,000

 

 

 

 

—

 

Accrued other liabilities

 

 

 

57,080

 

 

 

 

27,648

 

Liabilities related to assets held for sale

 

 

 

6,790

 

 

 

 

—

 

Total current liabilities

 

 

 

225,075

 

 

 

 

102,040

 

LONG-TERM DEBT, LESS CURRENT PORTION

 

 

 

2,224,054

 

 

 

 

795,881

 

DEFERRED INCOME TAXES

 

 

 

251,978

 

 

 

 

90,385

 

OTHER LONG-TERM LIABILITIES

 

 

 

30,215

 

 

 

 

7,287

 

 

 

 

 

2,731,322

 

 

 

 

995,593

 

COMMITMENTS AND CONTINGENCIES (Note 10)

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

 

 

 

Common stock, 100,000,000 shares authorized, 76,804,618 and 47,105,744 issued and

   outstanding, par value $0.00001 as of September 30, 2017 and December 31, 2016,

   respectively

 

 

 

—

 

 

 

 

—

 

Paid-in capital

 

 

 

745,117

 

 

 

 

173,879

 

Retained earnings

 

 

 

108,806

 

 

 

 

124,560

 

Accumulated other comprehensive income

 

 

 

12

 

 

 

 

12

 

Total stockholders’ equity

 

 

 

853,935

 

 

 

 

298,451

 

Total liabilities and stockholders’ equity

 

$

 

3,585,257

 

 

$

 

1,294,044

 

 

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

 

367,930

 

 

$

 

184,604

 

 

$

 

825,833

 

 

$

 

532,141

 

Pari-mutuel commissions

 

 

 

5,162

 

 

 

 

3,527

 

 

 

 

9,945

 

 

 

 

7,104

 

Food and beverage

 

 

 

56,356

 

 

 

 

38,029

 

 

 

 

132,307

 

 

 

 

108,735

 

Hotel

 

 

 

38,536

 

 

 

 

28,001

 

 

 

 

85,473

 

 

 

 

73,843

 

Other

 

 

 

15,052

 

 

 

 

12,095

 

 

 

 

35,196

 

 

 

 

33,994

 

 

 

 

 

483,036

 

 

 

 

266,256

 

 

 

 

1,088,754

 

 

 

 

755,817

 

Less-promotional allowances

 

 

 

(38,162

)

 

 

 

(24,691

)

 

 

 

(87,776

)

 

 

 

(69,371

)

Net operating revenues

 

 

 

444,874

 

 

 

 

241,565

 

 

 

 

1,000,978

 

 

 

 

686,446

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

 

184,790

 

 

 

 

103,272

 

 

 

 

428,543

 

 

 

 

299,908

 

Pari-mutuel commissions

 

 

 

4,601

 

 

 

 

3,506

 

 

 

 

9,793

 

 

 

 

7,761

 

Food and beverage

 

 

 

26,457

 

 

 

 

21,046

 

 

 

 

66,711

 

 

 

 

61,557

 

Hotel

 

 

 

10,138

 

 

 

 

7,956

 

 

 

 

24,767

 

 

 

 

23,064

 

Other

 

 

 

7,792

 

 

 

 

7,298

 

 

 

 

18,689

 

 

 

 

19,990

 

Marketing and promotions

 

 

 

24,634

 

 

 

 

11,323

 

 

 

 

54,845

 

 

 

 

30,664

 

General and administrative

 

 

 

68,585

 

 

 

 

34,094

 

 

 

 

155,778

 

 

 

 

98,129

 

Corporate

 

 

 

7,718

 

 

 

 

4,426

 

 

 

 

21,734

 

 

 

 

15,684

 

Depreciation and amortization

 

 

 

29,122

 

 

 

 

15,810

 

 

 

 

69,635

 

 

 

 

47,597

 

Total operating expenses

 

 

 

363,837

 

 

 

 

208,731

 

 

 

 

850,495

 

 

 

 

604,354

 

GAIN (LOSS) ON SALE OF ASSET OR DISPOSAL OF PROPERTY

 

 

 

4

 

 

 

 

25

 

 

 

 

(51

)

 

 

 

(740

)

ACQUISITION CHARGES

 

 

 

(2,094

)

 

 

 

(4,750

)

 

 

 

(89,172

)

 

 

 

(5,326

)

EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATE

 

 

 

(23

)

 

 

 

—

 

 

 

 

(305

)

 

 

 

—

 

OPERATING INCOME

 

 

 

78,924

 

 

 

 

28,109

 

 

 

 

60,955

 

 

 

 

76,026

 

OTHER EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

(29,183

)

 

 

 

(12,589

)

 

 

 

(69,380

)

 

 

 

(38,375

)

Loss on early retirement of debt, net

 

 

 

(10,030

)

 

 

 

—

 

 

 

 

(37,347

)

 

 

 

(155

)

Total other expense

 

 

 

(39,213

)

 

 

 

(12,589

)

 

 

 

(106,727

)

 

 

 

(38,530

)

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE

   INCOME TAXES

 

 

 

39,711

 

 

 

 

15,520

 

 

 

 

(45,772

)

 

 

 

37,496

 

(PROVISION) BENEFIT FOR INCOME TAXES

 

 

 

(11,595

)

 

 

 

(5,838

)

 

 

 

27,625

 

 

 

 

(13,654

)

INCOME (LOSS) FROM CONTINUING OPERATIONS

 

 

 

28,116

 

 

 

 

9,682

 

 

 

 

(18,147

)

 

 

 

23,842

 

INCOME FROM DISCONTINUED OPERATIONS, NET OF TAXES

 

 

 

1,438

 

 

 

 

—

 

 

 

 

2,393

 

 

 

 

—

 

NET INCOME (LOSS)

 

$

 

29,554

 

 

$

 

9,682

 

 

$

 

(15,754

)

 

$

 

23,842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) per common share attributable to common stockholders - basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

 

0.36

 

 

$

 

0.21

 

 

$

 

(0.28

)

 

$

 

0.51

 

Income from discontinued operations, net of income taxes

 

 

 

0.02

 

 

 

 

—

 

 

 

 

0.03

 

 

 

 

—

 

Net income (loss) attributable to common stockholders

 

$

 

0.38

 

 

$

 

0.21

 

 

$

 

(0.25

)

 

$

 

0.51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) per common share attributable to common stockholders - diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

 

0.36

 

 

$

 

0.20

 

 

$

 

(0.28

)

 

$

 

0.50

 

Income from discontinued operations, net of income taxes

 

 

 

0.02

 

 

 

 

—

 

 

 

 

0.03

 

 

 

 

—

 

Net income (loss) attributable to common stockholders

 

$

 

0.38

 

 

$

 

0.20

 

 

$

 

(0.25

)

 

$

 

0.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Basic Shares Outstanding

 

 

 

76,902,070

 

 

 

 

47,193,120

 

 

 

 

63,821,705

 

 

 

 

47,106,706

 

Weighted Average Diluted Shares Outstanding

 

 

 

77,959,689

 

 

 

 

47,834,644

 

 

 

 

64,768,174

 

 

 

 

47,737,592

 

 

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

3

 

ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

NET INCOME (LOSS)

 

$

 

29,554

 

 

$

 

9,682

 

 

$

 

(15,754

)

 

$

 

23,842

 

Other Comprehensive Income (Loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

Comprehensive Income (Loss), net of tax

 

$

 

29,554

 

 

$

 

9,682

 

 

$

 

(15,754

)

 

$

 

23,842

 

 

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

4

 

ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2017

 

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

 

(15,754

)

 

$

 

23,842

 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

69,635

 

 

 

 

47,597

 

Amortization of deferred financing costs, discount and debt premium

 

 

 

5,041

 

 

 

 

2,614

 

Equity in loss of unconsolidated affiliate

 

 

 

305

 

 

 

 

—

 

Loss on early extinguishment of debt

 

 

 

37,347

 

 

 

 

155

 

Change in fair value of acquisition related contingencies

 

 

 

36

 

 

 

 

1

 

Stock compensation expense

 

 

 

4,454

 

 

 

 

2,749

 

Loss on disposal of assets

 

 

 

51

 

 

 

 

740

 

Provision for bad debts

 

 

 

397

 

 

 

 

308

 

(Benefit) provision for deferred income taxes

 

 

 

(25,535

)

 

 

 

12,432

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Restricted cash

 

 

 

200

 

 

 

 

2,876

 

Sale of trading securities

 

 

 

272

 

 

 

 

—

 

Accounts receivable

 

 

 

(6,939

)

 

 

 

(7,388

)

Inventory

 

 

 

17

 

 

 

 

265

 

Prepaid expenses and other assets

 

 

 

2,054

 

 

 

 

(5,489

)

Interest payable

 

 

 

(1,441

)

 

 

 

(7,271

)

Income taxes receivable/payable

 

 

 

(1,268

)

 

 

 

—

 

Accounts payable and accrued liabilities

 

 

 

2,959

 

 

 

 

(1,181

)

Net cash provided by operating activities

 

 

 

71,831

 

 

 

 

72,250

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment, net

 

 

 

(53,181

)

 

 

 

(32,949

)

Reimbursement of capital expenditures from West Virginia regulatory authorities

 

 

 

251

 

 

 

 

4,113

 

Restricted cash

 

 

 

1,617

 

 

 

 

—

 

Proceeds from sale of property and equipment

 

 

 

—

 

 

 

 

1,560

 

Net cash used in business combinations

 

 

 

(1,343,659

)

 

 

 

(491

)

Decrease in other assets, net

 

 

 

—

 

 

 

 

564

 

Net cash used in investing activities

 

 

 

(1,394,972

)

 

 

 

(27,203

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of New Term Loan

 

 

 

1,450,000

 

 

 

 

—

 

Proceeds from issuance of 6% Senior Notes

 

 

 

875,000

 

 

 

 

—

 

Borrowings under New Revolving Credit Facility

 

 

 

166,953

 

 

 

 

—

 

Payments under Term Loan

 

 

 

(1,062

)

 

 

 

(3,188

)

Payments under New Term Loan

 

 

 

(448,125

)

 

 

 

—

 

Payments under New Revolving Credit Facility

 

 

 

(166,953

)

 

 

 

—

 

Borrowings (payments) under Revolving Credit Facility

 

 

 

41,000

 

 

 

 

(74,500

)

Payments under Revolving Credit Facility

 

 

 

(29,000

)

 

 

 

—

 

Retirement of Term Loan

 

 

 

(417,563

)

 

 

 

—

 

Retirement of Revolving Credit Facility

 

 

 

(41,000

)

 

 

 

—

 

Debt premium proceeds

 

 

 

27,500

 

 

 

 

—

 

Payment of other long-term obligation

 

 

 

(23

)

 

 

 

—

 

Payments on capital leases

 

 

 

(347

)

 

 

 

(204

)

Debt issuance costs

 

 

 

(51,338

)

 

 

 

(463

)

Taxes paid related to net share settlement of equity awards

 

 

 

(10,927

)

 

 

 

(1,366

)

Proceeds from exercise of stock options

 

 

 

2,900

 

 

 

 

1,005

 

Net cash provided by (used in) financing activities

 

 

 

1,397,015

 

 

 

 

(78,716

)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

 

73,874

 

 

 

 

(33,669

)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

 

 

 

61,029

 

 

 

 

78,278

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

 

134,903

 

 

$

 

44,609

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

 

67,840

 

 

$

 

43,000

 

Cash paid during period for income taxes

 

 

 

714

 

 

 

 

1,406

 

NON-CASH FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

Payables for capital expenditures

 

 

 

2,286

 

 

 

 

1,961

 

 

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

5

 

ELDORADO RESORTS, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

Organization

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

Throughout the three and nine months ended September 30, 2017, ERI owned and operated the following properties:

 

•

Eldorado Resort Casino Reno (“Eldorado Reno”)—A 814-room hotel, casino and entertainment facility connected via an enclosed skywalk to Silver Legacy and Circus Reno located in downtown Reno, Nevada that includes 1,125 slot machines and 46 table games;

 

•

Silver Legacy Resort Casino (“Silver Legacy”)—A 1,711-room themed hotel and casino connected via an enclosed skywalk to Eldorado Reno and Circus Reno that includes 1,187 slot machines, 63 table games and a 13 table poker room;

 

•

Circus Circus Reno (“Circus Reno”)—A 1,571-room hotel-casino and entertainment complex connected via an enclosed skywalk to Eldorado Reno and Silver Legacy that includes 720 slot machines and 26 table games;

 

•

Eldorado Resort Casino Shreveport (“Eldorado Shreveport”)—A 403-room, all suite art deco-style hotel and tri-level riverboat dockside casino situated on the Red River in Shreveport, Louisiana that includes 1,397 slot machines, 52 table games and an eight table poker room;

 

•

Mountaineer Casino, Racetrack & Resort (“Mountaineer”)—A 357-room hotel, casino and entertainment facility and live thoroughbred horse racing located on the Ohio River at the northern tip of West Virginia’s northwestern panhandle that includes 1,505 slot machines, 36 table games and a 10 table poker room;

 

•

Presque Isle Downs & Casino (“Presque Isle Downs”)—A casino and live thoroughbred horse racing facility with 1,596 slot machines, 32 table games and a seven table poker room located in Erie, Pennsylvania; and

 

•

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

In addition, on May 1, 2017, the Company consummated its acquisition of Isle of Capri Casinos, Inc. and acquired the following properties:

 

•

Isle Casino Hotel—Black Hawk (“Isle Black Hawk”)—A land-based casino on an approximately 10-acre site in Black Hawk, Colorado that includes 993 slot machines, 27 table games, a nine table poker room and a 238-room hotel;

 

•

Lady Luck Casino—Black Hawk (“Lady Luck Black Hawk”)—A land-based casino across the intersection from Isle Casino Hotel in Black Hawk, Colorado, that includes 430 slot machines, 10 table games, five poker tables and a 164-room hotel with a parking structure connecting Isle Casino Hotel-Black Hawk and Lady Luck Casino-Black Hawk;

 

•

Isle Casino Racing Pompano Park (“Pompano”)—A casino and harness racing track on an approximately 223-acre owned site in Pompano Beach, Florida, that includes 1,459 slot machines and a 45 table poker room;

 

•

Isle Casino Bettendorf (“Bettendorf”)—A land-based single-level casino located off of Interstate 74 in Bettendorf, Iowa that includes 978 slot machines and 20 table games with two hotel towers with 509 hotel rooms;

 

•

Isle Casino Waterloo (“Waterloo”)—A single-level land-based casino in Waterloo, Iowa that includes 940 slot machines, 25 table games, and a 194-room hotel;

 

•

Isle of Capri Casino Hotel Lake Charles (“Lake Charles”)—A gaming vessel on an approximately 19 acre site in Lake Charles, Louisiana, with 1,160 slot machines, 49 table games, including 13 poker tables and two hotels offering 493 rooms;

 

•

Isle of Capri Casino Lula (“Lula”)—Two dockside casinos in Lula, Mississippi with 879 slot machines and 20 table games, two on-site hotels with a total of 486 rooms and a 28-space RV Park;

6

 

 

•

Lady Luck Casino Vicksburg (“Vicksburg”)—A dockside casino in Vicksburg, Mississippi that includes 619 slot machines, nine table games and a hotel with a total of 89 rooms;

 

•

Isle of Capri Casino Boonville (“Boonville”)—A single-level dockside casino in Boonville, Missouri that includes 893 slot machines, 20 table games and a 140-room hotel;

 

•

Isle Casino Cape Girardeau (“Cape Girardeau”)—A dockside casino and pavilion and entertainment center in Cape Girardeau, Missouri that includes 881 slot machines, 20 table games and four poker tables;

 

•

Lady Luck Casino Caruthersville (“Caruthersville”)—A riverboat casino located along the Mississippi River in Caruthersville, Missouri that includes 513 slot machines and nine table games;

 

•

Isle of Capri Casino Kansas City (“Kansas City”)—A dockside casino located close to downtown Kansas City, Missouri offering 967 slot machines and 18 table games; and

 

•

Lady Luck Casino Nemacolin (“Nemacolin”)—A casino property located on the 2,000-acre Nemacolin Woodlands Resort in Western Pennsylvania that includes 600 slot machines and 28 table games.

On August 22, 2016, Isle entered into an agreement to sell Lake Charles for aggregate consideration of $134.5 million, subject to certain adjustments. The transaction (the “Lake Charles Disposition”) remains subject to Louisiana Gaming Control Board approval and other customary closing conditions and, if obtained, the transaction is expected to be completed by December 31, 2017.

Acquisition of Isle of Capri Casinos, Inc.

On May 1, 2017 (the “Isle Acquisition Date”), the Company completed its acquisition of Isle of Capri Casinos, Inc. pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) dated as of September 19, 2016 with Isle of Capri Casinos, Inc., a Delaware corporation (“Isle” or “Isle of Capri”), Eagle I Acquisition Corp., a Delaware corporation and a direct wholly-owned subsidiary of the Company, and Eagle II Acquisition Company LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of the Company (the “Isle Acquisition” or the “Isle Merger”). As a result of the Isle Merger, Isle became a wholly-owned subsidiary of ERI and, at the effective time of the Isle Merger, each outstanding share of Isle’s stock converted into the right to receive $23.00 in cash or 1.638 shares of ERI common stock (the “Stock Consideration”), at the election of the applicable Isle shareholder and subject to proration such that the outstanding shares of Isle common stock were exchanged for aggregate consideration comprised of 58% cash, or $552.0 million, and 42% ERI common stock, or 28.5 million newly issued shares of ERI common stock. The total purchase consideration was $1.93 billion (See Note 2).

In connection with the Isle Acquisition, the Company completed a debt financing transaction comprised of: (a) a senior secured credit facility in an aggregate principal amount of $1.75 billion with a (i) term loan facility of $1.45 billion and (ii) revolving credit facility of $300.0 million and (b) $375.0 million of senior unsecured notes. The proceeds of such borrowings were used (v) to pay the cash portion of the consideration payable in the Isle Merger, (w) refinance all of Isle’s existing credit facilities, (x) redeem or otherwise repurchase all of Isle’s senior and senior subordinated notes, (y) refinance the Company’s existing credit facility and (z) pay transaction fees and expenses related to the foregoing (See Note 7 for further discussion of the refinancing transaction and terms of such indebtedness).

Acquisition charges attributed to the Isle Acquisition are reported on the accompanying statement of operations related to legal, accounting, financial advisory services, severance, stock awards and other costs totaling $2.1 million and $89.2 million for the three and nine months ended September 30, 2017, respectively, and $4.7 million for the three and nine months ended September 30, 2016. As of September 30, 2017, $0.2 million of accrued costs and expenses related to the Isle Acquisition are included in accrued other liabilities. Additionally, we recognized a loss of $27.3 million for the nine months ended September 30, 2017 related to the extinguishment of Isle debt and the payment of interest and call premiums in conjunction with the Isle Acquisition.

The presentation of information herein for periods prior to the Isle Acquisition Date and after the Isle Acquisition Date are not fully comparable because the results of operations for Isle are not included for periods prior to the Isle Acquisition Date. Summary financial results of Isle for the three and nine months ended January 22, 2017 are included in Isle’s Quarterly Report on Form 10-Q as filed with the Securities and Exchange Commission (“SEC”). In conjunction with the Isle Acquisition, Isle is no longer required to file quarterly and annual reports with the SEC, and terminated its registration on May 11, 2017.

Reclassifications

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

7

 

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 executive decision maker of our Company reviews operating results, assesses performance and makes decisions on a “significant market” basis. The Company’s management views each of its properties as an operating segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, the regulatory environments in which they operate, and their management and reporting structure. Prior to the Isle Acquisition, the Company’s principal operating activities occurred in three geographic regions: Nevada, Louisiana and parts of the eastern United States. The Company aggregated its operations into three reportable segments based on the similar characteristics of the operating segments within the regions in which they operated. Following the Isle Acquisition, the Company’s principal operating activities occur in four geographic regions and reportable segments based on the similar characteristics of the operating segments within the regions in which the Company operates: West, Midwest, South, and East (See Note 12 for the list of properties included in each segment for the three and nine months ended September 30, 2017 and 2016).

These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Summary of Significant Accounting Policies - Updates

Marketable securities consist primarily of trading securities held by the Company’s captive insurance subsidiary. The trading securities are primarily debt and equity securities that are purchased with the intention to resell in the near term. The trading securities are carried at fair value with changes in fair value recognized in current period income in the accompanying statements of operations. This accounting policy was implemented as of the Isle Acquisition Date.

Recently Issued Accounting Pronouncements – New Developments

In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-09, which amends the scope of modification accounting for share-based payment arrangements. An entity should account for the effects of a modification unless the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The standard is effective for the financial statements issued for annual periods and interim periods within those annual periods, beginning after December 15, 2017, and early adoption is permitted. We anticipate adopting this accounting standard during the first quarter of 2018, and are evaluating the impact on our consolidated financial statements.

In May 2014 (amended January 2017), FASB issued ASU No. 2014‑09, “Revenue from Contracts with Customers,” which provides guidance for revenue recognition. The new standard outlines 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 FASB has also recently issued several amendments to the standard, including narrow-scope improvements and practical expedients (ASU 2016-12) and clarification on accounting for and identifying performance obligations (ASU 2016-10). 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. The standard is designed to create greater comparability for financial statement users across industries and jurisdictions and also requires enhanced disclosures. The guidance is effective for interim and annual periods beginning after December 15, 2017, and should be applied using the full retrospective method or retrospectively with the cumulative effect initially applying the guidance recognized at the date of initial application. While early adoption is permitted for interim and annual periods beginning after December 15, 2016, we anticipate adopting this standard on January 1, 2018, on a full retrospective basis. We are currently in the process of evaluating the full impact adoption of ASU 2014‑09 (as amended) will have on our consolidated financial statements, including any new considerations with respect to the Isle Acquisition. We anticipate this new standard will likely have a material impact on our consolidated financial statements.

We expect the most significant effect upon adoption of ASU 2014-09 (as amended) will likely be related to 1) the accounting for our customer loyalty program (no longer will be recorded at cost, and a deferred revenue model will likely be used to account for the classification and timing of revenue recognized, as well as the classification of related expenses for loyalty point redemptions) and 2) the elimination of promotional allowances (the presentation of goods and services provided to our customers without charge,

8

 

included in gross revenue with a corresponding reduction in promotional allowances, will no longer be reported as revenue and will be recognized based on relative standalone selling prices for transactions with more than one performance obligation). As a result, we expect that our liability associated with the customer loyalty program will increase, and our gaming revenues will be significantly reduced as the goods and services provided to customers without charge that currently are included in both gross revenues and promotional allowances will be presented on a net basis, with the majority of the impact resulting in a decrease in casino revenues. The quantitative effects of these changes have not yet been fully determined and are still being analyzed.

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

 

Note 2. Isle Acquisition and Preliminary Purchase Price Accounting

On May 1, 2017, the Company completed its acquisition of Isle. The total purchase consideration in the Isle Merger was determined with reference to the fair value on the date of the Merger Agreement as follows:

 

Purchase consideration calculation (dollars in thousands, 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 Merger. 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 Merger. 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.

9

 

Preliminary Purchase Price Accounting

The following table summarizes the preliminary accounting of the estimated 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 preliminary work performed by third-party valuation specialists. The following table summarizes the preliminary purchase price accounting of the acquired assets and liabilities as of September 30, 2017 (dollars in thousands):

 

Current and other assets, net

 

$

 

134,143

 

Property and equipment

 

 

 

853,331

 

Goodwill

 

 

 

679,656

 

Intangible assets (i)

 

 

 

470,811

 

Other noncurrent assets

 

 

 

11,025

 

Assets held for sale

 

 

 

143,592

 

Total assets

 

 

 

2,292,558

 

Current liabilities

 

 

 

(138,475

)

Deferred income taxes (ii)

 

 

 

(187,127

)

Other noncurrent liabilities

 

 

 

(26,762

)

Liabilities related to assets held for sale

 

 

 

(5,449

)

Total liabilities