10-K 1 tv517390_10k.htm FORM 10-K

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 10-K

 

 

 

(Mark One)

 

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

 

For the fiscal year ended December 31, 2018

OR

 

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

 

Commission file number: 001-38850

 

 

 

TWIN RIVER WORLDWIDE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   20-0904604

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

100 Twin River Road, Lincoln, RI 02865

(Address of principal executive offices) (Zip Code)

 

(401) 475-8474

(Registrant’s telephone number, including area code)

 

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

 

Title of each class   Name of each exchange on which registered
Common Stock, par value of $0.01 per share   New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ¨     No  x 

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ¨     No  x

 

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  x

 

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  x     No  ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 x Smaller reporting company ¨
       
    Emerging growth company   x

 

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. x

 

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

 

As of June 30, 2018, the last day of the registrant’s most recently completed second fiscal quarter, there was no public market for registrant’s common stock. The registrant’s common stock began trading on the New York Stock Exchange on March 29, 2019. As of March 29, 2019, the aggregate market value of the voting common stock held by non-affiliates of the registrant, based on the closing price on the New York Stock Exchange for such date, was approximately $800.4 million.

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class   Outstanding as of March 29, 2019
Common stock, $0.01 par value   41,070,920

 

 

 

 

 

 

TWIN RIVER WORLDWIDE HOLDINGS, INC.

 

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018

 

TABLE OF CONTENTS

 

      Page No.
  PART I    
       
ITEM 1. Business   4
       
ITEM 1A. Risk Factors   13
       
ITEM 1B. Unresolved Staff Comments   26
       
ITEM 2. Properties   26
       
ITEM 3. Legal Proceedings   27
       
ITEM 4. Mine Safety Disclosures   27
       
  PART II    
       
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   28
       
ITEM 6. Selected Financial Data   29
       
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations   29
       
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk   41
       
ITEM 8. Financial Statements and Supplementary Data   43
       
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   80
       
ITEM 9A. Controls and Procedures   80
       
ITEM 9B. Other Information   80
       
  PART III    
       
ITEM 10. Directors, Executive Officers and Corporate Governance   81
       
ITEM 11. Executive Compensation   85
       
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   99
       
ITEM 13. Certain Relationships and Related Transactions, and Director Independence   100
       
ITEM 14. Principal Accounting Fees and Services   101
       
  PART IV    
       
ITEM 15. Exhibits, Financial Statement Schedules   102
       
ITEM 16. Form 10-K Summary   103
       
  SIGNATURES   108

 

 2 

 

 

Cautionary Note Regarding Forward-Looking Statements

 

This Annual Report and the documents incorporated by reference in this Annual Report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that involve substantial risks and uncertainties. In some cases you can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plans," "planned," "seek," "should," "will," and "would," or similar words. Statements that contain these words and other statements that are forward-looking in nature should be read carefully because they discuss future expectations, contain projections of future results of operations or of financial positions or state other "forward-looking" information.

 

Forward-looking statements involve inherent uncertainty and may ultimately prove to be incorrect or false. You are cautioned not to place undue reliance on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or actual operating results. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to:

 

·the risk that negative industry or economic trends and reductions in discretionary consumer spending as a result of competition, downturns in the economy or other changes could harm our business;

 

·the risk that new gaming licenses or jurisdictions become available (or offer different gaming regulations or taxes) that results in increased competition to us;

 

·the effect of the expansion of legalized gaming in the regions in which we operate;

 

·the effects of intense competition that exists in the gaming industry;

 

·the effects of the extensive governmental gaming regulation and taxation policies that we are subject to, as well as any changes in laws and regulations, including increased taxes, which could harm our business;

 

·the risk that regulatory authorities may revoke, suspend, condition or limit our gaming or other licenses, impose substantial fines and take other adverse actions against any of our operations;

 

·the risk that any breach of the terms of the Regulatory Agreement could harm our business;

 

·our obligation to fund multi-employer pension plans to which we contribute;

 

·our ability to realize the anticipated benefit from our acquisition of Dover Downs;

 

·the risk that our acquisitions and other expansion opportunities divert management’s attention or incur substantial costs, or that we are otherwise unable to develop, profitably manage or successfully integrate the businesses we acquire;

 

·the risk that we may be unable to refinance our outstanding indebtedness as it comes due, or that if we do refinance, the terms are not favorable to us;

 

·the effects of extreme weather conditions or natural disasters on our facilities and the geographic areas from which we draw our customers, and our ability to recover insurance proceeds (if any);

 

·the effects of events adversely impacting the economy or the regions from which we draw a significant percentage of our customers, including the effects of economic recession, war, terrorist or similar activity or disasters in, at, or around our properties;

 

·the risk that we fail to adapt our business and amenities to changing customer preferences;

 

·the risk of failing to maintain the integrity of our information technology infrastructure, including cyber security hacking, causing the unintended distribution of our customer data to third parties and access by third parties to our customer data;

 

·our estimated effective income tax rates, estimated tax benefits, and the merits of our tax positions; and

 

·the potential of certain of our stockholders owning large interests in our capital stock to significantly influence our affairs.

 

This list of risks and uncertainties, however, is only a summary of some of the most important factors that could cause our actual results to differ materially from those anticipated in forward-looking statements and is not intended to be exhaustive. You should carefully review the risks described under "Part I. Item 1A. Risk Factors," as well as any other cautionary language in this Annual Report, as the occurrence of any of these events could adversely affect our business, financial condition or results of operations, and such adverse effect could be material.

 

 3 

 

 

PART I

 

ITEM 1.    BUSINESS

 

Unless otherwise specified, references to the “Company,” “Twin River,” “we,” “our” or “us” in this Annual Report on Form 10-K (“Annual Report”) mean Twin River Worldwide Holdings, Inc. and all entities included in our consolidated financial statements along with Dover Downs Gaming & Entertainment, Inc. (“Dover Downs”), which became an indirect wholly-owned subsidiary on March 28, 2019. See the consolidated financial statements and notes thereto included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report for information regarding our financial performance.

 

Overview

 

We are a Delaware corporation based in Lincoln, Rhode Island, and a multi-jurisdictional owner of gaming and racing facilities. We currently own and manage the Twin River Casino and Hotel (“Twin River Casino Hotel”) in Lincoln, Rhode Island which is our flagship property, the Tiverton Casino Hotel (“Tiverton Casino Hotel”), in Tiverton, Rhode Island, the Hard Rock Hotel & Casino (“Hard Rock Biloxi”) in Biloxi, Mississippi, Dover Downs Hotel, Casino and Raceway (“Dover Downs Hotel & Casino”) in Dover, Delaware, and the Arapahoe Park racetrack and Havana Park off-track betting (collectively, “Mile High USA”) in Aurora, Colorado. On September 1, 2018, we opened the Tiverton Casino Hotel following the closure of the Newport Grand Casino (“Newport Grand”) in August 2018. On March 28, 2019, we completed our merger with Dover Downs. As of March 28, 2019, our casinos had an aggregate of over 400,000 square feet of gaming space, approximately 8,500 slot machines, approximately 260 gaming tables, approximately 65 stadium gaming positions, approximately 40 dining establishments, 20 bars, three entertainment venues and approximately 1,200 hotel rooms.

 

Acquisitions

 

On July 10, 2014, we acquired 100% of the assets of Hard Rock Biloxi in a cash transaction for approximately $250.0 million. With the completion of the transaction, the Hard Rock Biloxi became a wholly-owned subsidiary and continues to operate as the Hard Rock Biloxi.

 

On July 14, 2015, we acquired Newport Grand for the agreed upon purchase price of $21.8 million, including net working capital. In November 2016, we received state and town referendum approval to terminate the existing Newport Grand gaming license and have a new gaming license issued to a new casino to be developed in Tiverton, Rhode Island.

 

On May 1, 2018, we sold the land and building related to Newport Grand to a third party for $10.2 million. We then leased back the Newport Grand land and building from May 1, 2018 until November 1, 2018 at which time we vacated the property. On August 28, 2018, Newport Grand was closed for operations, and Tiverton Casino Hotel was opened on September 1, 2018.

 

On January 29, 2019, we entered into a definitive agreement pursuant to which we have agreed to acquire a subsidiary of Affinity Gaming (“Affinity”) that owns Golden Gates, Golden Gulch and Mardi Gras, Affinity’s three casino properties in Black Hawk, Colorado. The transaction is subject to customary closing conditions, including review by the Colorado Division of Gaming and approval by the Colorado Limited Gaming Control Commission, and is expected to close in early 2020.

 

On March 28, 2019, we completed our merger with Dover Downs, with Dover Downs becoming our indirect wholly-owned subsidiary (the “Merger”). As part of the Merger, Dover Downs shareholders received common stock of Twin River representing 7.225% of the equity of the combined company at closing. We expect to continue to operate the wholly-owned subsidiary as “Dover Downs Gaming & Entertainment, Inc.”

 

We seek to continue to grow our business by actively pursuing the acquisition and development of new gaming opportunities and reinvesting in our existing operations. In addition, we seek to increase revenues through enhancing the guest experience by providing popular games, restaurants, hotel accommodations, entertainment and other amenities in attractive surroundings with high-quality guest service.

 

 4 

 

 

Our Operating Structure

 

As of December 31, 2018, we had four operating segments: Twin River Casino Hotel, Hard Rock Biloxi, Tiverton Casino Hotel and Mile High USA, and two reportable segments, Rhode Island and Biloxi. Newport Grand, which represented an immaterial operating segment and operated up until its closing in August 2018, has been aggregated with Twin River Casino Hotel and Tiverton Casino Hotel to form the Rhode Island reportable segment. Our Biloxi reportable segment includes only Hard Rock Biloxi. We report Mile High USA, an immaterial operating segment, and shared services provided by our management subsidiary in the “Other” category. We anticipate that Dover Downs Hotel & Casino will operate as a separate operating segment and we are still evaluating the reporting segment structure inclusive of Dover Downs Hotel & Casino.

 

Our operations are all within the United States. See Note 15, “Segment Reporting” to our consolidated financial statements presented in Part II, Item 8 for additional information.

 

Properties

 

As of March 28, 2019, we own and operate five properties. We derive the majority of our net revenues from our gaming operations, which generated approximately 75% of net revenue in 2018 and 2017, and 73% of net revenue in 2016. Food and beverage revenue represent our next most significant revenue source, generating approximately 11% of net revenue in 2018 and 2017, and 13% of net revenue in 2016, respectively. Hotel revenue and other revenue each contributed less than 10% of net revenue during each year. All revenue figures do not include the impact of Dover Downs Hotel & Casino. Information relating to the location and general characteristics of our properties is provided in “Item 2. Properties.”

 

Intellectual Property

 

As of March 28, 2019, we own six trademarks and have four pending trademarks with the U.S. Patent and Trademark Office.

 

As part of our acquisition of the Hard Rock Biloxi in July 2014, Hard Rock Biloxi entered into an amendment to the existing license agreement with Hard Rock Hotel, Licensing, Inc., which provides for an initial term of 20 years through September 2025 and the option to renew for two successive ten-year terms. Under the license agreement, we have the exclusive right to use the “Hard Rock” brand name in connection with, and as it relates to, the Hard Rock Biloxi property for an annual fee.

 

Competition

 

The gaming industry is characterized by a high degree of competition among a large number of operators, including riverboat casinos, dockside casinos, land-based casinos, video lotteries, video gaming terminals at taverns in certain states, sweepstakes and poker machines not located in casinos, Native American gaming, emerging varieties of Internet and fantasy sports gaming, increased sports betting and other forms of gaming in the United States (“U.S.”). In a broader sense, our gaming operations face competition from many leisure and entertainment activities, including, for example: shopping, athletic events, television and movies, concerts and travel. Legalized gaming is currently permitted in various forms in different parts of the U.S., in several Canadian provinces and on many lands taken into trust for the benefit of certain Native Americans in the U.S. and First Nations in Canada. Other jurisdictions, including states near our current properties (such as Massachusetts and Connecticut), have legalized and expanded or have plans to license additional gaming facilities, video gaming terminals and other gaming offerings in the near future. In addition, more gaming jurisdictions could award additional gaming licenses or permit the expansion or relocation of existing gaming operations. New, relocated or expanded operations by other companies could increase competition for our gaming operations and could adversely affect us. Finally, the imposition of smoking bans and/or higher gaming tax rates in Mississippi, Colorado and Delaware, where a smoking ban already exists, would have a significant impact on our properties’ ability to compete with facilities in nearby jurisdictions.

 

Our racing operation at Arapahoe Park currently owns all of the off-track betting (“OTB”) licenses in Colorado. However, Arapahoe Park does face competition from advance deposit wagering, online wagering on horse racing and other forms of entertainment such as casino and online gaming. Additionally, for a number of years, there has been a general decline in the number of people attending and wagering on live horse races at North American racetracks due to a number of factors, including increased competition from other wagering and entertainment alternatives and unwillingness of customers to travel a significant distance to racetracks.

 

 5 

 

 

Various competitive properties have opened or will be opening in the future that may affect our flagship casino in Rhode Island. In November 2011, the Expanded Gaming Act was signed into law in Massachusetts, which allowed up to three commercial destination resort casinos located in three geographically diverse regions across the state and a single slots facility for one location statewide. In February 2014, the Massachusetts Gaming Commission (“MGC”) awarded the slots-only gaming license to Plainridge Park Casino in Plainville, Massachusetts, which opened in June 2015. In the third quarter of 2018, MGM Resorts International opened the $1.0 billion Springfield resort casino in Springfield, Massachusetts, and the $2.5 billion Encore Boston Harbor casino is scheduled to open in June 2019 in Everett, Massachusetts. We have taken various steps designed to increase our competitive position, including building a hotel adjacent to our Twin River Casino Hotel facility near Providence, Rhode Island, constructing a new facility in Tiverton, Rhode Island and obtaining regulatory approvals for changes in gaming operations designed to bolster our competitive position. There can be no assurance that these steps will be effective, or what the ultimate effect of this additional competition will be. Also, the Massachusetts law allows the MGC at its discretion to award one additional commercial casino license, limited to the southeast region of the Commonwealth. The MGC solicited public comment late in 2018 on this issue as it continues to evaluate whether to issue such license. Among other things, the regulatory agreement under which our Rhode Island properties operate (the “Regulatory Agreement”) prohibits us and our subsidiaries from owning, operating, managing, or providing gaming specific goods and services to any properties in Rhode Island (other than the Twin River Casino Hotel and Tiverton Casino Hotel), Massachusetts, Connecticut or New Hampshire, which may adversely affect growth and market opportunity in those states. Finally, construction of a tribal casino in Taunton, Massachusetts is currently on hold following a U.S. Department of the Interior ruling in September 2018 regarding the validity of the tribe’s land in trust taking. The tribe has initiated litigation challenging this decision in the U.S. District Court of Massachusetts. Further, companion Senate and House bills have been introduced in Congress that would award the land in trust to the tribe and prevent any further litigation, including pending cases, with regard to its status. The outcome of this litigation and the likelihood of the proposed legislation passing is inherently uncertain.

 

We also face gaming competition from the Mohegan Sun Casino & Resort and the Foxwoods Resort Casino, both in Connecticut, which are owned by the Mohegan Tribe and the Mashantucket Pequot Tribe, respectively. In addition, other federally recognized Native American tribes continue to pursue new gaming projects elsewhere in the northeastern United States.

 

In Delaware, we compete in local and regional markets with casinos, horse tracks and racinos. Many of our gaming competitors are in jurisdictions with a closer proximity to large population bases and with a lower tax burden. The introduction or expansion of gaming in neighboring jurisdictions, particularly Maryland, Virginia, West Virginia, Washington, D.C., Pennsylvania or New Jersey, the proliferation of internet gaming or the legalization of additional gaming venues in Delaware, could adversely affect our cash flows and results of operations. Delaware is surrounded by jurisdictions which permit slot machines and table games, such as Pennsylvania, New Jersey, Maryland and West Virginia. In recent years, the mid-Atlantic region has experienced an unprecedented expansion in gaming venues and gaming offerings and many analysts believe that the market is showing signs of saturation, in part due to the fact that new gaming venues often result in a substantial loss of business for existing locations.

 

Additionally, groups seeking federal recognition as Native American tribes, as well as federally recognized Native American tribes, continue efforts to establish or expand casino gaming on reservation lands. Additional casino gaming operations in the northeastern United States may adversely affect our results of operations in this market. We are unable to predict whether changes in federal recognition rules or efforts by federally recognized Native American tribes or groups seeking federal recognition as Native American tribes will lead to the establishment of additional tribal casino gaming operations in the northeastern United States.

 

In addition, in May 2018, the U.S. Supreme Court struck down as unconstitutional the Professional and Amateur Sports Protection Act of 1992, a federal statute enacted to stop the spread of state-sponsored sports gambling. This decision has the effect of lifting federal restrictions on sports wagering and leaves individual jurisdictions such as states to determine the legality of sports wagering. While new federal online gaming legislation has been introduced in Congress from time to time, there has been no federal legislative response to the U.S. Supreme Court’s decision.

 

As a result, Washington, D.C., Nevada, Delaware, Mississippi, New Jersey, Pennsylvania, Rhode Island, West Virginia, New Mexico and Arkansas have passed legislation authorizing fixed-odds sports betting. Our Rhode Island, Delaware and Mississippi properties now offer sports wagering pursuant to state law in each case.

 

We may also face competition from other gaming facilities which are able to offer sports wagering services following the enactment of applicable legislation. A law authorizing sports betting in New York was enacted in 2013, but regulations to implement that law have yet to be promulgated, and a measure to allow for full-scale sports betting failed in June 2018. Numerous states that border our locations have pending or proposed legislation which would allow for sports betting, including Connecticut, Massachusetts, Maryland, Louisiana, Tennessee, Oklahoma and Kansas, each of which could adversely affect our financial results.

 

 6 

 

 

Government Regulation

 

General

 

The gaming and racing industries are highly regulated and we must maintain licenses and pay gaming taxes in each jurisdiction in which we operate in order to continue operations. Each of our facilities is subject to extensive regulation under the laws, rules and regulations of the jurisdiction where it is located. These laws, rules and regulations generally concern the responsibility, financial stability, integrity and character of the owners, managers and persons with financial interests in the gaming operations. Violations of laws or regulations in one jurisdiction could result in disciplinary action in that and other jurisdictions.

 

Gaming laws are generally based upon declarations of public policy designed to protect gaming consumers and the viability and integrity of the gaming industry. Gaming laws also may be designed to protect and maximize state and local tax revenues, as well as to enhance economic development and tourism. To accomplish these public policy goals, gaming laws establish stringent procedures to ensure that participants in the gaming industry meet certain standards of character and responsibility. Among other things, gaming laws require gaming industry participants to:

 

·ensure that unsuitable individuals and organizations have no role in gaming operations;

 

·establish procedures designed to prevent cheating and fraudulent practices;

 

·establish and maintain anti-money laundering practices and procedures;

 

·establish and maintain responsible accounting practices and procedures;

 

·maintain effective controls over their financial practices, including establishing minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues;

 

·maintain systems for reliable record keeping;

 

·file periodic reports with gaming regulators;

 

·establish programs to promote responsible gaming; and

 

·enforce minimum age requirements.

 

Typically, a state regulatory environment is established by statute and underlying regulations and is administered by one or more regulatory agencies with broad discretion to regulate the affairs of owners, managers and persons with financial interests in gaming operations. Among other things, gaming authorities in the various jurisdictions in which we conduct our business:

 

·adopt rules and regulations under the implementing statutes;

 

·interpret and enforce gaming laws and regulations;

 

·impose disciplinary sanctions for violations, including fines and penalties;

 

·review the character and fitness of participants in gaming operations and make determinations regarding their suitability or qualification for licensure;

 

·grant licenses for participation in gaming operations;

 

·collect and review reports and information submitted by participants in gaming operations;

 

·in the case of Rhode Island, collect proceeds from our operations in Rhode Island and provide us with commissions based on such proceeds;

 

·review and approve certain transactions, which may include acquisitions or change-of-control transactions of gaming industry participants and securities offerings and debt transactions engaged in by such participants; and

 

·establish and collect fees and taxes in jurisdictions where applicable.

 

Any change in the laws or regulations of a gaming jurisdiction could adversely affect our gaming operations.

 

 7 

 

 

Licensing and Suitability Determinations.

 

Gaming laws require us, and each of our subsidiaries engaged in gaming operations, certain of our directors, officers and employees, and in some cases, certain of our shareholders, to obtain licenses from gaming authorities. Licenses typically require a determination that the applicant qualifies or is suitable to hold the license. Gaming authorities have broad discretion in determining whether an applicant qualifies for licensing or should be deemed suitable. Criteria used in determining whether to grant or renew a license to conduct gaming operations, while varying among jurisdictions, generally include consideration of factors such as:

 

·the character, honesty and integrity of the individual applicant;

 

·the financial stability, integrity and responsibility of the entity applicant, including whether its operation is adequately capitalized in the state and whether it exhibits the ability to maintain adequate insurance levels;

 

·the quality of the entity applicant’s casino facilities;

 

·the amount of revenue to be derived by the applicable state from the operation of the entity applicant’s casino; and

 

·the effect on competition and general impact on the community of the entity applicant’s casino or racing operations.

 

In evaluating individual applicants, gaming authorities consider the individual’s business experience and reputation for good character, the individual’s criminal history and the character of those with whom the individual associates.

 

Some gaming jurisdictions limit the number of licenses granted to operate casinos within the state, and some states limit the number of licenses granted to any one gaming operator. Licenses under gaming laws are generally not transferable without regulatory approval. Licenses in the jurisdictions in which we conduct gaming operations are granted for limited durations and require renewal from time to time. There can be no assurance that any of our licenses will be renewed. The failure to renew any of our licenses could adversely affect our gaming operations.

 

In addition to us and our direct and indirect subsidiaries engaged in gaming operations, gaming authorities may investigate any individual who has a material relationship to or material involvement with any of our entities to determine whether such individual is suitable or should be licensed. Our officers, directors and certain key employees must file applications with the gaming authorities and may be required to be licensed or to qualify or be found suitable in many jurisdictions. Gaming authorities may deny an application for licensing for any cause which they deem reasonable. Qualification and suitability determinations require submission of detailed personal and financial information followed by a thorough investigation. The applicant must pay all the costs of the investigation. Changes in licensed positions must be reported to gaming authorities and, in addition to their authority to deny an application for licensure, qualification or a finding of suitability, gaming authorities have jurisdiction to disapprove a change in a corporate position.

 

If one or more gaming authorities were to find that an officer, director or key employee fails to qualify or is unsuitable for licensing or unsuitable to continue having a relationship with us, we would be required to sever all relationships with such person. In addition, gaming authorities may require us to terminate the employment of any person who refuses to file appropriate applications.

 

Moreover, in many jurisdictions, certain of our stockholders may be required to undergo a suitability investigation similar to that described above. Many jurisdictions require any person who acquires beneficial ownership of more than a certain percentage of our voting securities, typically 5%, to report the acquisition to gaming authorities, and gaming authorities may require such holders to apply for qualification or a finding of suitability. Many gaming authorities, including those in Delaware and Rhode Island, however, allow an “institutional investor” to apply for a waiver or a reduced disclosure obligation. An “institutional investor” is generally defined as an investor acquiring and holding voting securities in the ordinary course of business as an institutional investor for passive investment purposes only, and not for the purpose of causing, directly or indirectly, the election of a member of our board of directors (the “Board”), any change in our corporate charter, bylaws, management, policies or operations, or those of any of our gaming affiliates, or the taking of any other action which gaming authorities find to be inconsistent with holding our voting securities for passive investment purposes only. Even if a waiver or reduced disclosure obligation is granted, an institutional investor generally may not take any action inconsistent with its status when the waiver was granted without once again becoming subject to the foregoing reporting and application obligations.

 

Generally, any person who fails or refuses to apply for a finding of suitability or a license within the prescribed period after being advised that it is required by gaming authorities may be denied a license or found unsuitable, as applicable.  Under a shareholders agreement applicable prior to the Company’s listing and the Company’s bylaws, if a stockholder were to be found by an applicable gaming authority to be an unsuitable person, or if the Board were otherwise to determine that a stockholder is an unsuitable person under applicable gaming laws, then the Company may, subject to compliance with the bylaws, redeem such stockholder’s voting securities. In addition, in these circumstances, until such voting securities are owned by suitable stockholders, (1) the Company would not be required or permitted to pay any dividend, payment, distribution or interest with respect to such voting securities, (2) the unsuitable stockholder holder would not be entitled to exercise any voting rights in respect of such voting securities, (3) the Company would not pay any remuneration in any form to the holder of such voting securities (other than, if applicable, the redemption price for such securities), (4) no unsuitable person could continue as a manager, officer, partner or director of the Company, and (5) all other rights (including economic and voting rights) of such unsuitable persons in respect of the voting securities would be suspended.

 

 8 

 

 

Violations of Gaming Laws

 

If we or our subsidiaries violate applicable gaming laws, our gaming licenses could be limited, conditioned, suspended or revoked by gaming authorities, and we and any other persons involved could be subject to substantial fines. Further, a supervisor or conservator can be appointed by gaming authorities to conduct operations at our gaming properties, or in some jurisdictions, take title to our gaming assets in the jurisdiction, and under certain circumstances, earnings generated during such appointment could be forfeited to the applicable state or states. Furthermore, violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions. As a result, violations by us of applicable gaming laws could adversely affect our gaming operations.

 

Some gaming jurisdictions prohibit certain types of political activity by a gaming licensee, its officers, directors and key people. A violation of such a prohibition may subject the offender to criminal and/or disciplinary action.

 

Reporting and Record-Keeping Requirements

 

We are required periodically to submit detailed financial and operating reports and furnish any other information about us or our subsidiaries which gaming authorities may require. Under federal law, we are required to record and submit detailed reports of currency transactions involving greater than $10,000 at our casinos, as well as any suspicious activity that may occur at such facilities. Failure to comply with these requirements could result in fines or cessation of operations. We are required to maintain a current stock ledger which may be examined by gaming authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to gaming authorities. A failure to make such disclosure may be grounds for finding the record holder unsuitable. Gaming authorities may require certificates for our securities to bear a legend indicating that the securities are subject to specified gaming laws.

 

Review and Approval of Transactions

 

Substantially all material loans, leases, sales of securities and similar financing transactions by us and our subsidiaries must be reported to, and in some cases approved by, gaming authorities. Neither us nor any of our subsidiaries may make a public offering of securities without the prior approval of certain gaming authorities. Changes in control through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or otherwise are subject to receipt of prior approval of gaming authorities. Entities seeking to acquire control of us or one of our subsidiaries must satisfy gaming authorities with respect to a variety of stringent standards prior to assuming control. Gaming authorities may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control to be investigated and licensed as part of the approval process relating to the transaction.

 

Because of regulatory restrictions, our ability to grant a security interest in any of our gaming assets is limited and subject to receipt of prior approval by certain gaming authorities.

 

License Fees and Gaming Taxes

 

We pay substantial taxes in our jurisdictions, including some of the cities and towns in which our operations are conducted, in connection with our casino gaming operations, computed in various ways depending on the type of gaming or activity involved. Depending upon the particular fee or tax involved, these fees and taxes are payable with varying frequency. License fees and taxes are based upon such factors as:

 

·a percentage of the gaming revenues received;

 

·the number of gaming devices and table games; and/or

 

·one-time fees payable upon the initial receipt of license and fees in connection with the renewal of license.

 

In some jurisdictions, gaming tax rates are graduated such that the tax rates increase as gaming revenue increases. Tax rates are subject to change, sometimes with little notice, and such changes could adversely affect our gaming operations.

 

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In addition to taxes specifically unique to gaming, we are required to pay all other applicable taxes, such as income and property taxes.

 

Rhode Island Commissions

 

In Rhode Island, our gaming operations are subject to extensive regulation by the Rhode Island Department of Business Regulation and the Division of Lotteries of the Rhode Island Department of Revenue. Unlike other jurisdictions in which we operated in 2018, Rhode Island does not have a traditional tax on gaming operations. The state receives all of the gaming win that comes into our Rhode Island operations and then pays us a percentage of the gaming win. As a result, our revenue from Rhode Island operations reflects only the net amount we are paid of the total gaming win from our Rhode Island casinos. Delaware operates on a similar commission-type basis, and we are still evaluating how this will be accounted for at Dover Downs Hotel & Casino.

 

Operational Requirements

 

In our jurisdictions, we are subject to certain requirements and restrictions on how we must conduct our gaming operations.

 

Some gaming jurisdictions prohibit cash distributions from a gaming operation, except to allow for the payment of taxes, if the distribution would impair the financial viability of the gaming operation. Moreover, many jurisdictions require a gaming operation to maintain insurance and post bonds in amounts determined by their gaming authority.

 

In addition, our ability to conduct certain types of games, introduce new games or move existing games within our facilities may be restricted or subject to regulatory review and approval.

 

Racetracks

 

We conduct horse racing operations at our racetracks in Aurora, Colorado and Dover, Delaware and operate additional OTB locations throughout Colorado. Regulations governing our horse racing operation in Colorado and Delaware are administered separately from the regulations governing gaming operations, with separate licenses and license fee structures. The racing authorities responsible for regulating our racing operations have broad oversight authority, which may include: annually reviewing and granting racing licenses and racing dates, approving the opening and operation of OTB facilities, approving simulcasting activities, licensing all officers, directors, racing officials and certain other employees of a racing licensee, and approving certain contracts entered into by a racing licensee affecting racing, pari-mutuel wagering, account wagering and OTB operations.

 

The Regulatory Agreement

 

On July 1, 2016, certain of our subsidiaries, the Rhode Island Department of Business Regulation and the Division of Lotteries of the Rhode Island Department of Revenue entered into the Regulatory Agreement, which replaced an earlier regulatory agreement. The Regulatory Agreement sets forth certain requirements with respect to the Division of Lotteries of the Rhode Island Department of Revenue and the Rhode Island Department of Business Regulation’s regulatory oversight of us. The Regulatory Agreement restricts, among other things, our ability to amend or modify our credit agreement, to increase the principal amount of loans thereunder, to sell, transfer, lease or otherwise dispose of all or substantially all of our assets, to create, incur, assume or permit to exist certain liens or to incur additional indebtedness or make certain distributions if certain requirements are not met. Unless waived, we must also limit a person from acquiring direct or indirect financial interest in any class of securities in Twin River to the extent such acquisitions would exceed ownership limitations imposed by Rhode Island regulations or entering into certain related-party transactions, except for limited situations with respect to stock repurchases by us. The Regulatory Agreement also provides affirmative obligations, including setting a minimum number of employees that we must employ in Rhode Island and providing the Rhode Island Department of Business Regulation and the Division of Lotteries of the Rhode Island Department of Revenue with periodic information updates about us. Among other things, the Regulatory Agreement prohibits us and our subsidiaries from owning, operating, managing or providing gaming specific goods and services to any properties in Rhode Island (other than Twin River Casino Hotel and Tiverton Casino Hotel), Massachusetts, Connecticut or New Hampshire. Termination of the Regulatory Agreement may be effected by the Rhode Island Department of Business Regulation and the Division of Lotteries of the Rhode Island Department of Revenue at any time acting in their sole discretion and in accordance with the laws of the State of Rhode Island. Termination may be effected by us if we are no longer involved in the ownership or management of the Lincoln or Tiverton facilities. A failure to comply with the provisions in the Regulatory Agreement could subject us to injunctive or monetary relief, payments to the Rhode Island regulatory agencies and ultimately the revocation or suspension of our licenses to operate in Rhode Island.

 

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Delaware

 

Delaware law regulates the percentage of commission we are entitled to receive from our gaming activities at Dover Downs Hotel & Casino. Video lottery operations, sports wagering, table game and internet gaming operations are by statute operated and administered by the Director of the Delaware State Lottery Office (the “Lottery Director”) and Delaware’s Department of Safety and Homeland Security, Division of Gaming Enforcement.  Dover Downs is a Licensed Agent authorized to conduct these activities under the Delaware State Lottery Code. The Lottery Director has discretion to adopt such rules and regulations as the Lottery Director deems necessary or desirable for the efficient and economical operation and administration of the lottery.

 

We neither own nor lease the slot machines or computer systems used by Delaware in connection with our video lottery gaming operations.  The Lottery Director enters into contracts directly with the providers of the slot machines and computer systems and we are not a party to those negotiations.  Delaware purchases or leases all equipment and the Lottery Director licenses all technology providers, and we share in the expense.  Similarly, but at no expense to us, the Lottery Director enters into contracts directly with internet service providers. Our operations could be disrupted if a licensed technology provider violates its agreement with Delaware or ceases to be licensed for any reason.  Such an event would be outside of our control and could adversely affect our gaming revenues.

 

Our gaming license in Delaware allows for video lottery operations, sports wagering, table games and internet gaming operations.  Delaware gaming licenses do not have an expiration date. However, the Lottery Director may revoke or suspend the license of a Licensed Agent, such as ours, for “cause.”

 

In order to maintain our gaming license with the Delaware Lottery, we are required to maintain our license for harness horse racing with the Delaware Harness Racing Commission (“DHRC”) and must conduct a minimum of 80 live race days each racing season, subject to the availability of racing stock. We hold a license from the DHRC, through which we are authorized to hold harness race meetings on our premises, and to make, conduct and sell pools through the use of pari-mutuel machines or totalizators.  The license requires renewal on an annual basis.  DHRC may reject an application for a license for any cause which it deems sufficient, and the action of the DHRC is final.  Any license granted by the DHRC may also be subject to such reasonable rules and regulations as may be prescribed from time to time by the United States Trotting Association.

 

Mississippi

 

We are subject to the licensing and regulatory control of the Mississippi Gaming Commission, and are required to periodically submit detailed financial, operating and other reports to the Mississippi Gaming Commission and furnish any other information which the Mississippi Gaming Commission may require. If we are unable to satisfy the requirements of the Mississippi Act, we cannot own or operate gaming facilities in Mississippi. We are also required to periodically submit detailed financial, operating and other reports to the Mississippi Gaming Commission and the Mississippi Department of Revenue and to furnish any other information required thereby. With certain exceptions, no person may become a stockholder of, or receive any percentage of profits from, the casino licensees without first obtaining licenses and approvals from the Mississippi Gaming Commission.

 

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Employees and Labor Relations

 

As of March 28, 2019, we had approximately 4,900 employees. We consider our employee relations to be good. Most of our employees in Rhode Island are represented by a labor union or collective bargaining agreement. Employees in Delaware, Mississippi and Colorado are not represented by a labor union.

 

Corporate Information

 

We were incorporated in Delaware on March 1, 2004. Our principal executive offices are located at 100 Twin River Road, Lincoln, Rhode Island 02865, and our telephone number is (401) 475-8474. Our website address is www.twinriverwwholdings.com. The information that is contained in, or that is accessed through, our website is not part of this filing.

 

Available Information

 

As a publicly traded company we are required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). These filings are also available on the SEC’s website at www.sec.gov.

 

We make our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and all amendments to these reports, available free of charge through our corporate website as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC. In addition, our Code of Business Conduct, Corporate Governance Guidelines, and charters of the Audit Committee, the Compensation Committee, the Compliance Committee, and the Nominating and Governance Committee are available on our website, www.twinriverwwholdings.com.

 

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ITEM 1A.    RISK FACTORS

 

In addition to the other information contained in this Annual Report, the following Risk Factors should be considered carefully in evaluating our business.

 

If any of the following risks actually occur, our business, financial condition and results of operations could be adversely affected. If this were to happen, the value of our securities, including our common stock, could decline significantly, and investors could lose all or part of their investment.

 

Increased competition could adversely affect our business, results of operations and financial condition.

 

Various competitive properties have opened or will be opening in the future that may affect our flagship casino in Rhode Island, and perhaps our Tiverton property as well. In November 2011, the Expanded Gaming Act was signed into law in Massachusetts, which allowed up to three commercial destination resort casinos located in three geographically diverse regions across the state and a single slots facility for one location statewide. In February 2014, the MGC awarded the slots-only gaming license to Plainridge Park Casino in Plainville, Massachusetts which opened in June 2015. In the third quarter of 2018, MGM Resorts International opened the $1.0 billion Springfield resort casino in Springfield, Massachusetts, and the $2.5 billion Encore Boston Harbor is scheduled to open in June 2019. We have taken various steps designed to increase our competitive position, including building a hotel adjacent to our Twin River casino property in Lincoln, Rhode Island, near Providence, Rhode Island, constructing a new facility in Tiverton, Rhode Island and obtaining regulatory approvals for changes in gaming operations. There can be no assurance that these steps will be effective, or what the ultimate effect of this additional competition will be. In addition, the Massachusetts law allows the MGC at its discretion to award one additional commercial casino license, limited to the southeast region of the Commonwealth. The MGC solicited public comment late in 2018 on this issue as it continues to evaluate whether to issue such license. Finally, construction of a tribal casino in Taunton, Massachusetts is currently on hold following a U.S. Department of the Interior ruling in September 2018 regarding the validity of the tribe’s land in trust taking. The tribe has initiated litigation challenging this decision in the U.S. District Court of Massachusetts. Further, companion Senate and House bills have been introduced in Congress that would award the land in trust to the tribe and prevent any further litigation, including pending cases, with regard to its status. The outcome of this litigation and the likelihood of the proposed legislation is inherently uncertain.

 

Our business is particularly sensitive to reductions in discretionary consumer spending.

 

Consumer demand for casinos and casino hotel properties, such as ours, is sensitive to downturns in the economy and the associated impact on discretionary spending on leisure activities. Any adverse change in general economic conditions can adversely affect consumer spending, which can adversely affect our ability to generate revenues from operations. Adverse developments affecting economies throughout the world including a general tightening of the availability of credit, increasing energy costs, rising prices, inflation, acts of war or terrorism, natural disasters, declining consumer confidence or significant declines in the stock market could lead to a reduction in discretionary spending on entertainment and leisure activities, which could adversely affect our business, financial condition and results of operations.

 

Recessions have affected our business and financial condition, and economic conditions may continue to affect them in ways that currently cannot accurately be predicted.

 

Economic recessions have had, and may continue to have, far reaching adverse consequences across many industries, including the gaming industry, which may adversely affect our business and financial condition. In the past decade, the U.S. economy has experienced weakness and recession following a financial crisis, which resulted in increased unemployment, decreased consumer spending and a decline in housing values. In addition, while the Federal Reserve took policy actions to promote market liquidity and encourage economic growth following such recession, such actions are now being curtailed as signs of improvement in the economy, and the impact of these monetary policy actions on the national economy is uncertain. Moreover, we will rely on the strength of regional and local economies for the performance of each of our properties. If the national economic recovery slows or stalls, the national economy experiences another recession or any of the relevant regional or local economies suffers a downturn, we may experience a material adverse effect on our business, results of operations and financial condition.

 

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The gaming industry is very competitive and increased competition, including through legislative legalization or expansion of gaming by states in or near where we own facilities or through Native American gaming facilities and internet gaming, could adversely affect our financial results.

 

We will face significant competition in all of the areas in which we conduct our business. Increased competitive pressures may adversely affect our ability to continue to attract customers or affect our ability to compete efficiently.

 

Several of the facilities where we conduct our business are located in jurisdictions that restrict gaming to certain areas and/or may be affected by state laws that currently prohibit or restrict gaming operations. We also face the risk that existing casino licensees will expand their operations and the risk that Native American gaming will continue to grow. Budgetary pressures faced by state governments could lead to intensified political pressures for the legalization of gaming in jurisdictions where it is currently prohibited. The legalization of gaming in such jurisdictions could be an expansion opportunity for our business, or create competitive pressures, depending on where the legalization occurs and our ability to capitalize on it. Our ability to attract customers to the existing casinos which we own could be significantly and adversely affected by the legalization or expansion of gaming in certain jurisdictions and by the development or expansion of Native American casinos in areas where our customers may visit.

 

In addition, our competitors may refurbish, rebrand or expand their casino offerings, which could result in increased competition. Furthermore, changes in ownership may result in improved quality of our competitors’ facilities, which may make such facilities more competitive.

 

We also compete with other forms of legalized gaming and entertainment such as bingo, pull-tab games, card parlors, sports books, pari-mutuel or simulcast betting on horse and dog racing, state-sponsored lotteries, instant racing machines, video lottery terminals (“VLTs”) (including racetracks that offer VLTs), video poker terminals and, in the future, we may compete with gaming or entertainment at other venues. Furthermore, competition from internet lotteries and other internet wagering gaming services, which allow their customers to wager on a wide variety of sporting events and play Las Vegas-style casino games from home, could divert customers from the facilities we own and thus adversely affect our business. Such internet wagering services are likely to expand in future years and become more accessible to domestic gamblers as a result of U.S. Department of Justice positions related to the application of federal laws to intrastate internet gaming and initiatives in some states to consider legislation to legalize intrastate internet wagering. The law in this area has been rapidly evolving, and additional legislative developments may occur at the federal and state levels that would accelerate the proliferation of certain forms of internet gaming in the United States.

 

In addition, in May 2018, the U.S. Supreme Court struck down as unconstitutional the Professional and Amateur Sports Protection Act of 1992, a federal statute enacted to stop the spread of state-sponsored sports gambling. This decision has the effect of lifting federal restrictions on sports wagering and thus allows states to determine by themselves the legality of sports wagering. While new federal online gaming legislation has been introduced in Congress from time to time, there has been no federal legislative response to the U.S. Supreme Court’s decision.

 

As a result, Washington D.C., Nevada, Delaware, Mississippi, New Jersey, Pennsylvania, Rhode Island, West Virginia, New Mexico and Arkansas have passed legislation authorizing fixed-odds sports betting. Our Rhode Island, Delaware and Mississippi properties now offer sports wagering pursuant to state law in each case.

 

We may also face competition from other gaming facilities which are able to offer sports wagering services following the enactment of applicable legislation. A law authorizing sports betting in New York was enacted in 2013, but regulations to implement that law have yet to be promulgated, and a measure to allow for full-scale sports betting failed in June 2018. Numerous states that border the states in which we operate have pending or proposed legislation which would allow for sports betting, including Connecticut, Massachusetts, Maryland, Louisiana, Tennessee, Oklahoma and Kansas, each of which could have an adverse effect on our financial results.

 

Our gaming operations will rely heavily on technology services provided by third parties. In the event that there is an interruption of these services, it may have an adverse effect on our operations and financial condition.

 

We, or one of our state regulatory bodies, engage a number of third parties to provide gaming operating systems for the facilities we own. As a result, we rely on such third parties to provide uninterrupted services in order to run our business efficiently and effectively. In the event one of these third parties experiences a disruption in its ability to provide such services (whether due to technological or financial difficulties or power problems), this may result in a material disruption at the casinos which we own and have a material effect on our business, operating results and financial condition.

 

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Any unscheduled interruption in our technology services is likely to result in an immediate, and possibly substantial, loss of revenues due to a shutdown of our gaming operations, cloud computing and lottery systems. Such interruptions may occur as a result of, for example, catastrophic events or rolling blackouts. Our systems are also vulnerable to damage or interruption from earthquakes, floods, fires, telecommunication failures, hurricanes, terrorist attacks, computer viruses, computer denial-of-service attacks and similar events.

 

We are subject to extensive state and local regulation and licensing, and gaming authorities have significant control over our operations, which could have an adverse effect on our business.

 

The ownership and operation of casino gaming and horse racing facilities are subject to extensive state and local regulation, and regulatory authorities at the state and local levels have broad powers with respect to the licensing of these businesses, and may revoke, suspend, condition, fail to renew or limit our gaming or other licenses, impose substantial fines and take other actions, each of which poses a significant risk to our business, results of operations and financial condition. We currently hold all state and local licenses and related approvals necessary to conduct our present operations, but must periodically apply to renew many of these licenses and registrations and have the suitability of certain of our directors, officers and employees renewed. There can be no assurance that we will be able to obtain such renewals or that we will be able to obtain future approvals that would allow us to expand our gaming operations. Any failure to maintain or renew existing licenses, registrations, permits or approvals would have a material adverse effect on us. Furthermore, if additional gaming laws or regulations are adopted, these regulations could impose additional restrictions or costs that could have a significant adverse effect on us.

 

Any of the Rhode Island Department of Business Regulation and the Division of Lotteries of the Rhode Island Department of Revenue, the Mississippi Gaming Commission, the Delaware Gaming Commission or the Colorado Racing Commission may, in their discretion, require certain holders of any securities issued by us to file applications, be investigated and be found suitable to own our securities if it has reason to believe that the security ownership would be inconsistent with the declared policies of its respective state. The Rhode Island regulatory authorities limit the ability of third parties to acquire (1) 5% or more of our common stock, unless the stockholder has been granted a gaming license or the ownership is otherwise approved by the Rhode Island regulatory authorities, (2) 20% or more of our outstanding common stock, unless the acquiring stockholder has been granted a gaming license by the Rhode Island regulatory authorities or such ownership is otherwise approved or (3) as to passive institutional investors, generally 15% or more of our common stock, but in all cases the amount approved by the Rhode Island regulatory authorities with respect to that investor.

 

The Delaware regulatory authorities will limit the ability of third parties to acquire 10% or more of our common stock, or, as to passive institutional investors, up to 15% of our common stock, unless the acquiring stockholder has been granted a license by the Delaware regulatory authorities or such ownership is otherwise approved. The Delaware regulatory authorities recently adopted regulations substantially similar to those in effect in Rhode Island permitting a waiver for institutional shareholders who own up to 15% of a regulated company. The costs of any investigation conducted by any of these or other gaming authorities under these circumstances must be paid by the applicant, and refusal or failure to pay these charges may constitute grounds for a finding that the applicant is unsuitable to own the securities. If any of these or other gaming authorities determines that a person is unsuitable to own our securities, then, under the applicable gaming or horse racing laws and regulations, we could be sanctioned, including the loss of approvals, if, without the prior approval of the applicable gaming authority, we conduct certain business with the unsuitable person.

 

Our officers, directors and key employees will also be subject to a variety of regulatory requirements and various licensing and related approval procedures in the various jurisdictions in which we manage gaming facilities. If any applicable gaming authority were to find any of our officers, directors, or key employees unsuitable for licensing or unsuitable to continue having a relationship with it, we would have to sever all relationships with that person. Furthermore, the applicable gaming authority may require us to terminate the employment of any person who refuses to file appropriate applications. Either result could adversely affect our gaming operations.

 

Applicable gaming laws and regulations may restrict our ability to issue certain securities, incur debt and undertake other financing activities. Such transactions would generally require notice and/or approval of applicable gaming authorities, and our financing counterparties, including lenders, might be subject to various licensing and related approval procedures in the various jurisdictions in which we manage gaming facilities. Applicable gaming laws further limit our ability to engage in certain competitive activities and impose requirements relating to the composition of our Board and senior management personnel. If state regulatory authorities were to find any person unsuitable with regard to his, her or its relationship to us or any of our subsidiaries, we would be required to sever our relationship with that person, which could materially adversely affect our business.

 

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We are subject to numerous other federal, state and local laws that may expose us to liabilities or have a significant adverse impact on our operations. Changes to any such laws could have a material adverse effect on our operations and financial condition.

 

Our business is subject to a variety of other federal, state and local laws, rules, regulations and ordinances. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, employees, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Changes to any of the laws, rules, regulations or ordinances to which we are subject, new laws or regulations, or material differences in interpretations by courts or governmental authorities could have a adverse effect on our business, financial condition, results of operations and prospects.

 

Many of our employees, especially those that interact with our customers, receive a base salary or wage that is established by applicable state and federal laws that establish a minimum hourly wage that is, in turn, supplemented through tips and gratuities from customers. From time to time, state and federal lawmakers have increased the minimum wage. It is difficult to predict when such increases may take place. Any such change to the minimum wage could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

The manufacture and sale of alcoholic beverages is a highly regulated and taxed business. Federal, state and local laws and regulations govern the production and distribution of beer, including permitting, licensing, trade practices, labeling, advertising, marketing, distributor relationships and related matters. Federal, state and local governmental entities also levy various taxes, license fees, and other similar charges and may require bonds to ensure compliance with applicable laws and regulations. Failure to comply with applicable federal, state or local laws and regulations could result in higher taxes, penalties, fees, and suspension or revocation of permits, licenses or approvals and could have a material adverse effect on our business, financial condition, results of operations and prospects. From time to time, local and state lawmakers, as well as special interest groups, have proposed legislation that would increase the federal and/or state excise tax on alcoholic beverages or certain types of alcoholic beverages. If federal or state excise taxes are increased, we may have to raise prices to maintain our current profit margins. Higher taxes may reduce overall demand for beer, thus negatively impacting sales of our beer. Further federal or state regulation may be forthcoming that could further restrict the distribution and sale of alcohol products. Any material increases in taxes or fees, or the adoption of additional taxes, fees or regulations could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

In addition, each restaurant we operate must obtain a food service license from local authorities. Failure to comply with such regulations could cause our licenses to be revoked or our related restaurant business or businesses to be forced to cease operations. Moreover, state liquor laws may prevent the expansion of restaurant operations into certain markets.

 

Any violation of applicable anti-money laundering laws or regulations could adversely affect our business, financial condition, results of operations and prospects.

 

We handle significant amounts of cash in our operations and are subject to various reporting and anti-money laundering laws and regulations. Recently, U.S. governmental authorities have evidenced an increased focus on compliance with anti-money laundering laws and regulations in the gaming industry. Any violation of anti-money laundering laws or regulations could have a material adverse effect on our business, financial condition, results of operations and prospects. Internal control policies and procedures and employee training and compliance programs that we have implemented to deter prohibited practices may not be effective in prohibiting our employees, contractors or agents from violating or circumventing our policies and the law. If we or our employees or agents fail to comply with applicable laws or our policies governing our operations, we may face investigations, prosecutions and other legal proceedings and actions which could result in civil penalties, administrative remedies and criminal sanctions. Any such government investigations, prosecutions or other legal proceedings or actions could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Failure to comply with the terms of the Regulatory Agreement could result in a breach and could harm our business.

 

We are currently a party to the Regulatory Agreement with Rhode Island regulatory agencies. The Regulatory Agreement imposes certain affirmative and negative covenants on us. For more detail on the Regulatory Agreement see the section entitled “Governmental Regulation” in “Item I. Business.” A failure to comply with the provisions in the Regulatory Agreement could subject us to injunctive or monetary relief, payments to the Rhode Island regulatory agencies and ultimately the revocation or suspension of our licenses to operate in Rhode Island. Any such remedy could adversely affect our business, financial condition and results of operations. Among other things, the Regulatory Agreement prohibits us and our subsidiaries from owning, operating, managing or providing gaming specific goods and services to any gaming facilities in Rhode Island (other than Twin River Casino Hotel and Tiverton Casino Hotel), Massachusetts, Connecticut or New Hampshire, which may adversely affect our growth and market opportunity in those states.

 

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Our VLTs and table games hold percentages may fluctuate.

 

The gaming industry is characterized by an element of chance and our casino guests’ winnings depend on a variety of factors, some of which are beyond our control. In addition to the element of chance, hold percentages are affected by other factors, including players’ skill and experience, the mix of games played, the financial resources of players, the volume of bets placed and the amount of time played. The variability of our hold percentages has the potential to adversely affect our business, financial condition and results of operations.

 

We conduct our business in an industry that is subject to high taxes and may be subject to higher taxes in the future.

 

In gaming jurisdictions in which we conduct our business, with the exception of Rhode Island, state and local governments raise considerable revenues from taxes based on casino revenues and operations. In Rhode Island, the state takes all of the gaming win that comes into our Rhode Island operations and then pays us a percentage of the gaming win. We will also pay property taxes, occupancy taxes, sales and use taxes, payroll taxes, franchise taxes and income taxes. Our profitability will depend on generating enough revenues to cover variable expenses, such as payroll and marketing, as well as largely fixed expenses, such as property taxes and interest expense. From time to time, state and local governments have increased gaming taxes and such increases could significantly impact the profitability of gaming operations.

 

Our operations in Delaware, Colorado and Mississippi are generally subject to significant revenue-based taxes and fees in addition to normal federal, state and local income taxes, and such taxes and fees are subject to increase at any time. In addition, from time to time, federal, state and local legislators and officials have proposed changes in tax laws, or in the administration of such laws, affecting the gaming industry. Further, worsening economic conditions could intensify the efforts of Delaware, Colorado and Mississippi and applicable local governments to raise revenues through increases in gaming taxes and/or property taxes. It is not possible to determine with certainty the likelihood of changes in tax laws in these jurisdictions or in the administration of such laws. Such changes, if adopted, could adversely affect our business, financial condition and results of operations. The large number of state and local governments with significant current or projected budget deficits makes it more likely that those governments that currently permit gaming will seek to fund such deficits with new or increased gaming taxes and/or property taxes and worsening economic conditions could intensify those efforts. Any material increase, or the adoption of additional taxes or fees, could adversely affect our future financial results.

 

There can be no assurance that governments in jurisdictions in which we conduct our business, or the federal government, will not enact legislation that increases gaming tax rates. General economic pressures have the potential to reduce revenues of state governments from traditional tax sources, which may cause state legislatures or the federal government to be more inclined to increase gaming tax rates.

 

We are subject to risks associated with labor relations, labor costs and labor disruptions.

 

We are subject to the costs and risks generally associated with labor disputes and organizing activities related to unionized labor. From time to time, our operations may be disrupted by strikes, public demonstrations or other coordinated actions and publicity. We may incur increased legal costs and indirect labor costs as a result of contractual disputes, negotiations or other labor-related disruptions. We have collective bargaining agreements applicable to approximately 38% of our employees as of March 28, 2019. We have 12 collective bargaining agreements with terms ranging between three to five years generally. These agreements are based solely in Rhode Island. We may also face organizing activities that could result in additional employees becoming unionized. Furthermore, collective bargaining agreements may limit our ability to reduce the size of our workforce during an economic downturn, which could put us at a competitive disadvantage.

 

Our obligation to fund multiemployer defined benefit plans to which we are a party adversely affect us.

 

We must contribute to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover certain union-represented employees. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:

 

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·assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers;

 

·if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and

 

·if we choose to stop participating in some of our multiemployer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

 

In addition, the funding obligations for our pension plans will be impacted by the performance of the financial markets, particularly the equity markets, and interest rates. Funding obligations are determined by government regulations and are measured each year based on the value of assets and liabilities on a specific date. If the financial markets do not provide the long-term returns that are expected, we could be required to make larger contributions. The equity markets can be very volatile and, therefore, our estimate of future contribution requirements can change dramatically in relatively short periods of time. Similarly, changes in interest rates and legislation enacted by governmental authorities can impact the timing and amounts of contribution requirements. An adverse change in the funded status of the plans could significantly increase our required contributions in the future and adversely impact our liquidity.

 

The casino, hotel and hospitality industry is capital intensive and we may not be able to finance development, expansion and renovation projects, which could put us at a competitive disadvantage.

 

Our casino and hotel properties have an ongoing need for renovations and other capital improvements to remain competitive, including room refurbishments, amenity upgrades, and replacement, from time to time, of furniture, fixtures and equipment. We may also need to make capital expenditures to comply with applicable laws and regulations. Construction projects entail significant risks, which can substantially increase costs or delay completion of a project. Such risks include shortages of materials or skilled labor, unforeseen engineering, environmental or geological problems, work stoppages, weather interference and unanticipated cost increases. Most of these factors are beyond our control. In addition, difficulties or delays in obtaining any of the requisite licenses, permits or authorizations from regulatory authorities can increase the cost or delay the completion of an expansion or development. Significant budget overruns or delays with respect to expansion and development projects could adversely affect our business, and our results of operations.

 

Renovations and other capital improvements of casino properties in particular require significant capital expenditures. In addition, any such renovations and capital improvements usually generate little or no cash flow until the projects are completed. We may not be able to fund such projects solely from cash provided from operating activities. Consequently, we may have to rely upon the availability of debt or equity capital to fund renovations and capital improvements, and our ability to carry them out will be limited if we cannot obtain satisfactory debt or equity financing, which will depend on, among other things, market conditions. We cannot assure you that we will be able to obtain additional equity or debt financing on favorable terms or at all. Our failure to renovate and maintain gaming and entertainment venues from time to time may put us at a competitive disadvantage to gaming and entertainment venues offering more modern and better maintained facilities, which could adversely affect our business, financial condition, results of operations and prospects.

 

Because we will be heavily dependent upon hotel/casino and related operations that are conducted in certain limited regions, we will be subject to greater risks than a company that is geographically or otherwise more diversified.

 

We are heavily dependent upon hotel/casino and related operations that are conducted in Rhode Island, Mississippi, and Delaware for all of our cash flow. As a result, we are subject to a greater degree of risk than a gaming company that has greater geographical diversity. The risks to which we may have a greater degree of exposure include the following:

 

·local economic and competitive conditions;

 

·inaccessibility due to weather conditions, road construction or closure of primary access routes;

 

·changes in local and state governmental laws and regulations, including gaming laws and regulations;

 

·natural and other disasters, including earthquakes, hurricanes and flooding;

 

·a decline in the number of residents in or near, or visitors to, our operations;

 

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·an increase in gaming activities in neighboring jurisdictions; and

 

·a decrease in gaming activities at any of our facilities.

 

Any of the factors outlined above could adversely affect our ability to generate sufficient cash flow to make payments on our outstanding indebtedness.

 

We may not realize the anticipated benefits from our acquisitions, including our Merger with Dover Downs.

 

We cannot assure you that our Merger with Dover Downs, our proposed acquisition in Black Hawk, Colorado, or any future acquisitions will enhance our financial performance. Our ability to achieve the expected benefits of any acquisitions will depend on, among other things, our ability to effectively translate our strategies into revenue, our ability to retain and assimilate the acquired businesses' employees, our ability to retain customers and suppliers on terms similar to those in place with the acquired businesses, the adequacy of our implementation plans, our ability to maintain our financial and internal controls and systems as we expand our operations, the ability of our management to oversee and operate effectively the combined operations and our ability to achieve desired operating efficiencies and revenue goals. The integration of the businesses that we acquire might also cause us to incur unforeseen costs, which would lower our future earnings and would prevent us from realizing the expected benefits of such acquisitions. Failure to achieve these anticipated benefits could result in decreases in the amount of expected revenues and diversion of management’s time and energy and could adversely affect our business, financial condition and operating results including, ultimately, a reduction in our stock price.

 

Our acquisition strategy may adversely affect our business.

 

A portion of our past growth has been achieved through acquisitions of, or mergers with, other gaming companies. We also continually evaluate opportunities to acquire other companies. We believe that there are risks related to acquiring companies, including an inability to successfully identify suitable acquisition candidates or consummate such potential acquisitions. To the extent that our future growth includes acquisitions, we cannot assure you that we will not overpay for acquisitions, we may lose key employees of acquired companies, or we may fail to achieve potential synergies or successful expansion into new markets as a result of our acquisitions. Therefore, future acquisitions, if any, may adversely affect our business, financial condition or results of operations, particularly in periods immediately following the consummation of those transactions while the operations of the acquired business are being integrated with our operations. Achieving the benefits of acquisitions depends on timely, efficient and successful execution of a number of post-acquisition events, including, among other things:

 

·maintaining the customer and supplier base;

 

·optimizing operations;

 

·coordinating administrative and finance functions; and

 

·integrating management information systems and personnel.

 

The integration process could divert the attention of management. Any difficulties or problems encountered in the transition process could adversely affect our business, financial condition or results of operations. In particular, the integration process may temporarily redirect resources previously focused on increasing profitability. In addition, the process of combining companies could cause the interruption of, or a loss of momentum and operating profits in, the activities of the respective businesses, which could have an adverse effect on their combined operations.

 

In connection with acquisitions of businesses in the future, if any, we may decide to consolidate the operations of any acquired businesses with our existing operations or make other changes with respect to the acquired businesses, which could result in special charges or other expenses. Our results of operations also may be adversely affected by expenses we incur in making acquisitions, by amortization of acquisition-related intangible assets with definite lives and by additional depreciation and amortization attributable to acquired assets. Any of the businesses we acquire may also have liabilities or adverse operating issues, including some that we fail to discover before the acquisition, and our indemnity for such liabilities may also be limited. Additionally, our ability to make any future acquisitions may depend upon obtaining additional financing. We may not be able to obtain additional financing on acceptable terms or at all. To the extent that we seek to acquire other businesses in exchange for our common stock, fluctuations in our stock price could adversely affect on our ability to complete acquisitions.

 

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We may incur impairments to goodwill, indefinite-lived intangible assets, or long-lived assets.

 

We monitor the recoverability of our long-lived assets, such as buildings, and evaluate their carrying value for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. We annually review goodwill to determine if impairment has occurred. Additionally, interim reviews are performed whenever events or changes in circumstances indicate that impairment may have occurred. If the testing performed indicates that impairment has occurred, we are required to record a non-cash impairment charge for the difference between the carrying value and fair value of the long-lived assets or the carrying value and fair value of the reporting unit, in the period the determination is made. The testing of long-lived assets and goodwill for impairment requires us to make estimates that are subject to significant assumptions about our future revenue, profitability, cash flows, fair value of assets and liabilities, weighted average cost of capital, as well as other assumptions. Changes in these estimates, or changes in actual performance compared with these estimates, may affect the fair value of long-lived assets or reporting unit, which may result in an impairment charge.

 

We cannot accurately predict the amount or timing of any impairment of assets. Should the value of long-lived assets or goodwill become impaired, our financial condition and results of operations may be adversely affected.

 

Our debt agreements contain restrictive covenants that may limit our operating flexibility.

 

Our current credit facility includes, and our future debt agreements will likely include, financial and other covenants. Our ability to comply with these provisions may be affected by general economic conditions, industry conditions and other events beyond our control. There can be no assurance that we will be able to comply with these covenants. The failure to comply with a financial covenant or other restrictions contained in the agreements governing such indebtedness, may result in an event of default. An event of default could result in acceleration of some or all of the applicable indebtedness and the inability to borrow additional funds. We do not have, and cannot be certain we would be able to obtain, sufficient funds to repay any such indebtedness if it is accelerated. Additionally, our future debt agreements might contain numerous covenants imposing financial and operating restrictions on our business. These restrictions might affect our ability to operate our business, might limit our ability to take advantage of potential business opportunities as they arise and might adversely affect the conduct of our current business, including by restricting our ability to finance future operations and capital needs and limiting our ability to engage in other business activities.

 

Our existing and future indebtedness may limit our operating and financial flexibility.

 

At the close of the Merger, we had approximate indebtedness of $422.4 million, substantially all of which is secured indebtedness. This indebtedness may have important negative consequences for us, including:

 

·limiting our ability to satisfy obligations;

 

·increasing vulnerability to general adverse economic and industry conditions;

 

·limiting flexibility in planning for, or reacting to, changes in our businesses and the markets in which we conduct business;

 

·increasing vulnerability to, and limiting our ability to react to, changing market conditions, changes in industry and economic downturns;

 

·limiting our ability to obtain additional financing to fund working capital requirements, capital expenditures, debt service, general corporate or other obligations;

 

·subjecting us to a number of restrictive covenants that, among other things, limit our ability to pay dividends and distributions, make acquisitions and dispositions, borrow additional funds and make capital expenditures and other investments;

 

·limiting our ability to use operating cash flow in other areas of our business because we must dedicate a significant portion of these funds to make principal and/or interest payments on outstanding debt;

 

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·exposing us to interest rate risk due to the variable interest rate on borrowings under our credit facility;

 

·causing our failure to comply with the financial and restrictive covenants contained in our current or future indebtedness, which could cause a default under that indebtedness and which, if not cured or waived, could adversely affect us; and

 

·affecting our ability to renew gaming and other licenses necessary to conduct our business.

 

Servicing debt and funding other obligations requires a significant amount of cash, and our ability to generate sufficient cash depends on many factors, some of which will be beyond our control.

 

Our ability to make payments on and refinance our indebtedness and to fund our operations and capital expenditures depends upon our ability to generate cash flow and secure financing in the future. Our ability to generate future cash flow depends, among other things, upon:

 

·our future operating performance;

 

·general economic conditions;

 

·competition;

 

·legislative and regulatory factors affecting our operations and businesses; and

 

·our future operating performance.

 

Some of these factors will be beyond our control. There can be no assurance that our business will generate cash flow from operations or that future debt or equity financings will be available to us to enable us to pay our indebtedness or to fund other needs. The inability to generate cash flow could result in us needing to refinance all or a portion of our indebtedness on or before maturity. If needed, there can be no assurance that we will be able to refinance any of our indebtedness on favorable terms, or at all. Any inability to generate sufficient cash flow or refinance our indebtedness on favorable terms could adversely affect our financial condition.

 

A market downturn may negatively impact our access to financing.

 

Since emergence from a recession approximately ten years ago, the U.S. economy has been expanding at various growth rates. Such growth could slow, or reverse, and another economic downturn could occur. Some believe that the equity markets are currently overvalued. A downturn in the financial markets or market volatility could negatively impact our ability to access capital and financing (including financing necessary to refinance our existing indebtedness) on acceptable terms and prices, that we would otherwise need in connection with the operation of our business.

 

The market price of our common stock could fluctuate significantly.

 

There have been periods of time when the U.S. securities markets have experienced significant price fluctuations. These price fluctuations may be day-to-day or they may last for extended periods of time. Significant price fluctuations in the securities markets as a whole may cause the market price of our common stock to be volatile and subject to wide fluctuations. Prior to the Merger, we were a privately held company without an active public market for our shares. We believe that some shareholders desire to sell shares that they have held for a substantial period of time. The trading volume of our common stock may fluctuate and cause significant price variations to occur. Additional factors that could cause fluctuations in, or adversely affect, our stock price or trading volume include:

 

·general market and economic conditions, including market conditions in the gaming and hotel industries;

 

·actual or expected variations in quarterly operating results;

 

·differences between actual operating results and those expected by investors and analysts;

 

·sales of our common stock by current shareholders seeking liquidity in the public market;

 

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·changes in recommendations by securities analysts;

 

·operations and stock performance of competitors;

 

·accounting charges, including charges relating to the impairment of goodwill;

 

·significant acquisitions or strategic alliances by us or by competitors;

 

·sales of our common stock by our directors and officers or significant investors; and

 

·recruitment or departure of key personnel.

 

There can be no assurance that the stock price of our common stock will not fluctuate or decline significantly in the future. In addition, the stock market in general can experience considerable price and volume fluctuations that may be unrelated to our performance.

 

Our largest stockholder owns a meaningful percentage of our outstanding common stock, which could limit the ability of other stockholders to influence corporate matters.

 

Our largest stockholder beneficially owns 31.9% of our outstanding common stock. As a result, this stockholder may be able to exert influence over our affairs and policies. This concentrated ownership could limit the ability of the remaining stockholders to influence corporate matters, and the interests of the large stockholder may not coincide with our interests or the interests of the remaining stockholders. The concentration of ownership may also have the effect of delaying, preventing or deterring a change of control.

 

We have not historically paid dividends, and any decision to do so in the future will be at the discretion of our Board.

 

We have not historically paid regular dividends. However, we expect to pay a quarterly cash dividend initially targeted at approximately 1%, on an annual basis, of the common stock price beginning later this year. Any determination to pay dividends in the future will be at the discretion of our Board and will depend upon, among other factors, our earnings, cash requirements, financial condition, requirements to comply with the covenants under our debt instruments and the Regulatory Agreement, legal considerations, and other factors that our Board deems relevant. If we do not pay dividends, then the return on an investment in our common stock will depend entirely upon our future stock price. There is no guarantee that our common stock will maintain its value or appreciate in value.

 

We are a holding company and will depend on our subsidiaries for dividends, distributions and other payments.

 

We are structured as a holding company, a legal entity separate and distinct from our subsidiaries. Our only significant asset is the capital stock or other equity interests of our operating subsidiaries. As a holding company, we will conduct all of our business through our subsidiaries. Consequently, our principal source of cash flow, including cash flow to pay dividends, will be dividends and distributions from our subsidiaries. If our subsidiaries are unable to make dividend payments or distributions to us and sufficient cash or liquidity is not otherwise available, we may not be able to pay dividends. In addition, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization will be subject to the prior claims of the subsidiary’s creditors.

 

We are or may become involved in legal proceedings that, if adversely adjudicated or settled, could impact our business and financial condition

 

From time to time, we are named in lawsuits or other legal proceedings relating to our businesses. In particular, the nature of our business subjects us to the risk of lawsuits filed by customers, past and present employees, stockholders, competitors, business partners and others in the ordinary course of business. As with all legal proceedings, no assurances can be given as to the outcome of these matters. Moreover, legal proceedings can be expensive and time consuming, and we may not be successful in defending or prosecuting these lawsuits, which could result in settlements or damages that could adversely affect our business, financial condition and results of operations.

 

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We are subject to extensive environmental regulation, which creates uncertainty regarding future environmental expenditures and liabilities.

 

We are subject to various federal, state and local environmental laws and regulations that govern activities that may have adverse environmental effects, such as discharges to air and water, as well as the management and disposal of solid, animal and hazardous wastes and exposure to hazardous materials. These laws and regulations, which are complex and subject to change, include United States Environmental Protection Agency regulations. In addition, our horseracing facility in Colorado is subject to state laws and regulations that address the impacts of manure and wastewater generated by Concentrated Animal Feeding Operations (“CAFO”) on water quality, including, but not limited to, storm water discharges. CAFO regulations include permit requirements and water quality discharge standards. Enforcement of CAFO regulations has been receiving increased governmental attention. Compliance with these and other environmental laws can, in some circumstances, require significant capital expenditures. For example, we may incur future costs under existing and new laws and regulations pertaining to storm water and wastewater management at our racetracks. Moreover, violations can result in significant penalties and, in some instances, interruption or cessation of operations.

 

We are also subject to laws and regulations that create liability and cleanup responsibility for releases of regulated materials into the environment. Certain of these laws and regulations impose strict, and under certain circumstances joint and several, liability on a current or previous owner or operator of property for the costs of remediating regulated materials on or emanating from our property. The costs of investigation, remediation or removal of those substances may be substantial. The presence of, or failure to remediate properly, such materials may adversely affect the ability to sell or rent such property or to borrow funds using such property as collateral. Additionally, as an owner or manager of real property, we could be subject to claims by third parties based on damages and costs resulting from environmental contamination at or emanating from third party sites. These laws typically impose clean-up responsibility and liability without regard to whether the owner or manager knew of or caused the presence of the contaminants and the liability under those laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of the responsibility. In addition, environmental requirements address the impacts of development on wetlands.

 

The possibility exists that contamination, as yet unknown, may exist on our properties. There can be no assurance that we will not incur expenditures for environmental investigations or remediation in the future.

 

We are largely dependent on the skill and experience of management and key personnel.

 

We expect to experience strong competition in hiring and retaining qualified property and corporate management personnel, including competition from Native American gaming facilities that are not subject to the same taxation regimes as we are and therefore may be willing and able to pay higher rates of compensation. From time to time, a number of vacancies in key corporate and property management positions can be expected. If we are unable to successfully recruit and retain qualified management personnel at our facilities or at the corporate level, our results of operations could be adversely affected.

 

In addition, our officers, directors and key employees are required to file applications with the gaming authorities in each of the jurisdictions in which we conduct our business and are required to be licensed or found suitable by these gaming authorities. If the gaming authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with us, we would have to sever all relationships with that person. Furthermore, the gaming authorities may require us to terminate the employment of any person who refuses to file appropriate applications. Either result could significantly impair our operations. The time and effort needed to successfully complete the application process could impact our ability to attract, hire and retain top talent.

 

As an emerging growth company, we intend to take advantage of reduced governance requirements applicable to emerging growth companies, which could result in our common stock being less attractive to investors.

 

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups (JOBS) Act and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including but not limited to not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We cannot accurately predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, our stock price may be more volatile and it may be difficult for us to raise additional capital as and when we need it. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.

 

We may take advantage of these reporting exemptions until we are no longer an emerging growth company, which in certain circumstances could be for up to five years. We will remain an “emerging growth company” until the earliest of  (1) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (2) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, which would occur if the market value of our shares that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the preceding three-year period and (4) the last day of our fiscal year containing the fifth anniversary of the date on which shares of our common stock became publicly traded in the United States, or December 31, 2024.

 

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We expect to incur increased costs and become subject to additional regulations and requirements as a result of being a public company, and our management may be required to devote substantial time to new compliance matters, which could lower our profits or make it more difficult us to run our business.

 

As a public company, we are likely to incur significant legal, accounting and other expenses that we have not incurred historically, and these expenses may increase even more after we are no longer an “emerging growth company.” We anticipate incurring costs associated with the Sarbanes-Oxley Act and related rules implemented by the SEC and the New York Stock Exchange (the “NYSE”) where we are traded. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. In addition, we will not be a smaller reporting company or a controlled company and, as such will not be able to take advantage of the scaled disclosure requirements. Our management will need to devote a substantial amount of time to ensure that we comply with all of these requirements.

 

As a public company we are obligated to develop and maintain proper and effective internal control over financial reporting and any failure to do so may adversely affect investor confidence in us and, as a result, the value of our common stock.

 

Following a transition period afforded to companies that were not previously SEC reporting companies, we will be required by Section 404 of the Sarbanes-Oxley Act to furnish a report by management on, among other things, our assessment of the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. We also will be required to disclose significant changes made in our internal control procedures on a quarterly basis. The process of designing, implementing and testing internal controls over financial reporting is time consuming, costly and complicated. However, for as long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of the exemption permitting us to avoid the independent registered public accounting firm attestation requirement.

 

Our independent registered public accounting firm believes that we had a material weakness in internal control over financial reporting when it prepared financial statements as a private company relating to non-cash stock-based compensation. We remediated the issue in 2018 by retaining an accounting consulting firm to provide additional depth and breadth in our technical accounting and financial reporting capabilities which we intend to continue to retain until our permanent technical accounting resources, most of which have been identified or hired, are fully on-boarded. No assurance can be given as to the timing for us to recruit additional qualified accounting and finance personnel to provide needed levels of expertise in our internal accounting function.

 

If we are unable to successfully remediate any future deficiencies or weaknesses in our internal control over financial reporting, or if we identify any additional deficiencies or weaknesses, the accuracy and timing of our financial reporting could be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and/or our stock price may decline as a result.

 

Our business may be harmed from cyber security risk and we may be subject to legal claims if there is loss, disclosure or misappropriation of or access to our guests’, business partners’ or our own information or other breaches of information security.

 

We make extensive use of online services and centralized data processing, including through third party service providers. We have experienced cyber-attacks, attempts to breach our systems and other similar incidents. The secure maintenance and transmission of customer information will be a critical element of our operations. Our information technology and other systems that maintain and transmit guest information, or those of service providers, business partners or employee information may be compromised by a malicious third party penetration of our network security, or that of a third party service provider or business partner, or impacted by intentional or unintentional actions or inactions by our employees, or those of a third party service provider or business partner. As a result, our guests’ information may be lost, disclosed, accessed or taken without our guests’ consent.

 

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In addition, third party service providers and other business partners process and maintain proprietary business information and data related to our employees, guests, suppliers and other business partners. Our information technology and other systems that maintain and transmit this information, or those of service providers or business partners, may also be compromised by a malicious third party penetration of our network security or that of a third party service provider or business partner, or impacted by intentional or unintentional actions or inactions by our employees or those of a third party-service provider or business partner. As a result, our business information, guest, supplier and other business partner data may be lost, disclosed, accessed or taken without consent.

 

Any such loss, disclosure or misappropriation of, or access to, guests’ or business partners’ information or other breach of our information security can result in legal claims or legal proceedings, including regulatory investigations and actions, may have a serious impact on our reputation and may adversely affect our business, operating results and financial condition. Furthermore, the loss, disclosure or misappropriation of our business information may adversely affect our reputation, business, operating results and financial condition.

 

We are subject to risks relating to mechanical failure.

 

All of our facilities will generally be subject to the risk that operations could be halted for a temporary or extended period of time, as the result of casualty, forces of nature, mechanical failure, or extended or extraordinary maintenance, among other causes. In addition, our gaming operations could be damaged or halted due to extreme weather conditions. These risks are particularly pronounced at our Hard Rock Biloxi property because of its location adjacent to water and the potential for hurricanes in the Gulf of Mexico.

 

Our operations have historically been subject to seasonal variations and quarterly fluctuations in operating results, and we can expect to experience such variations and fluctuations in the future.

 

Historically, our gaming facilities have typically been subject to seasonal variations.

 

In the Rhode Island market, excessive snowfall during the winter months can make travel to Rhode Island casinos more difficult. This often results in significant declines in traffic on major highways and causes a decline in customer volume. Furthermore, management believes that substantially all visitors to the Rhode Island casinos arrive by some form of ground transportation. Therefore, even normal winter weather may cause revenues and cash flows for our Rhode Island operations to be adversely affected.

 

In addition, winter conditions can adversely affect transportation routes in Delaware. As a result, unfavorable seasonal conditions could adversely affect our operations at Dover Downs Hotel & Casino.

 

We may incur property and other losses that are not adequately covered by insurance.

 

Although we maintain insurance that we believe is customary and appropriate for our business, we cannot assure you that insurance will be available or adequate to cover all losses and damage to which our business or our assets might be subjected. The lack of adequate insurance for certain types or levels of risk could expose us to significant losses in the event that a catastrophe occurred for which we are uninsured or underinsured. Any losses we incur that are not adequately covered by insurance may decrease our future operating income, require us to find replacements or repairs for destroyed property and reduce the funds available for payments of our obligations. We renew our insurance policies on an annual basis. The cost of coverage may become so high that we may need to further reduce our policy limits, further increase our deductibles, or agree to certain exclusions from our coverage.

 

Our results of operations and financial condition could be adversely affected by the occurrence of natural disasters, such as hurricanes, or other catastrophic events, including war and terrorism.

 

Natural disasters, such as major hurricanes, typhoons, floods, fires and earthquakes, could adversely affect our business and operating results. Hurricanes are common in the areas in which our Mississippi property is located, and the severity of such natural disasters is unpredictable.

 

For example, in 2005, Hurricane Katrina destroyed the Hard Rock Biloxi before its opening and the property had to be rebuilt. In 2017, customer traffic to the Hard Rock Biloxi was negatively impacted by Hurricanes Harvey and Nate.

 

Catastrophic events, such as terrorist attacks in the United States and elsewhere, have had a negative effect on travel and leisure expenditures, including lodging, gaming (in some jurisdictions) and tourism. We cannot accurately predict the extent to which such events may affect us, directly or indirectly, in the future. There can be no assurance that we will be able to obtain or choose to purchase any insurance coverage with respect to occurrences of terrorist acts and any losses that could result from these acts. If there is a prolonged disruption at our facilities due to natural disasters, terrorist attacks or other catastrophic events, our results of operations and financial condition would be adversely affected.

 

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We may be unable to obtain business interruption coverage for casualties resulting from severe weather such as hurricanes, and there can be no assurance that we will be able to obtain casualty insurance coverage at affordable rates, if at all, for casualties resulting from severe weather.

 

ITEM 1B.    UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2.    PROPERTIES

 

The following table summarizes certain features of properties managed/owned by Twin River as of March 28, 2019:

 

Property  Location  Type 

Opening
Year

 

Gaming

Square

Footage

  

Slot

Machines

  

Table

Games

  

Hotel

Rooms

  

Food and

Beverage

Outlets

   Racebook  Sportsbook
Twin River Casino Hotel  Lincoln, RI  Casino and Hotel  2007   162,420    4,108    120    136    23   Yes  Yes
Hard Rock Biloxi  Biloxi, MS  Casino and Resort  2007   50,984    1,157    53    479    18   No  Yes
Tiverton Casino Hotel  Tiverton, RI  Casino and Hotel  2018   33,600    1,000    32    83    8   Yes  Yes
Dover Downs Hotel and Casino  Dover, DE  Casino, Hotel and Raceway  1995   165,000    2,195    58    500    14   Yes  Yes
Arapahoe Park and Havana Park  Aurora, CO  Racetrack/ OTB Site  1992                   3   Yes  No

 

Our Twin River Casino Hotel property is located in Lincoln, Rhode Island. It is situated 10 minutes from Providence, Rhode Island and is in close proximity to the southeastern Massachusetts market and Boston. The Twin River Casino Hotel is a full-service casino with 162,420 square feet of gaming space, 4,108 slot machines, 120 table games, which includes 23 poker tables, 16 dining establishments, seven bars and over 29,000 square feet of event space. It also hosts simulcasting of thoroughbred and greyhound racing from around the country. Additionally, we opened a new hotel on the Twin River Casino Hotel property in October 2018 which features 136 guest rooms. We also began offering sports betting at the Twin River Casino Hotel in late 2018. The Twin River Casino Hotel is open 24 hours per day.

 

Our Hard Rock Biloxi property is located in Biloxi, Mississippi. This location serves southern Mississippi and is also a Gulf Coast tourist destination. The Hard Rock Biloxi is a 1.6-acre waterfront resort with a full-service casino, including 50,984 square feet of gaming space, 1,157 slot machines and 53 table games, a two-tower hotel featuring 479 guest rooms, 11 dining establishments, seven bars and a 9,000 square foot theatre. It also includes four on-site nightlife venues and an outdoor pool with a swim-up bar. We also offer sports betting at the Hard Rock Biloxi. We lease certain property related to this location from the State of Mississippi with a primary term of 30 years, expiring June 30, 2037, with an option to extend for an additional 30 years. Annual rent for the year ending December 31, 2018 is $1.1 million and adjusts annually based on the increase in the consumer price index. The Hard Rock Biloxi is open 24 hours per day.

 

Our Tiverton Casino Hotel property is located in Tiverton, Rhode Island and opened in September 2018. This property is located near the Rhode Island-Massachusetts border, serving both the southeastern Massachusetts market and the Rhode Island market. The Tiverton Casino Hotel has 33,600 square feet of gaming space, 1,000 slot machines, 32 table games, six dining establishments, two bars and a hotel featuring 83 guest rooms. The Tiverton Casino Hotel is currently open 24 hours a day, although such business hours remain subject to review in connection with the Tiverton Casino Hotel’s conditional license.

 

Our Dover Downs property is located in Dover, Delaware. This location serves the Mid-Atlantic region. The casino is a 165,000 square foot complex featuring 58 table games, 2,195 slot machines, multi-player electronic table games, a poker room, and a race and sports book operation. The hotel is a 500 room hotel with conference, banquet, ballroom and concert hall facilities.  We have a perpetual easement to Dover Downs Raceway — our harness racing track.  Our casino offers pari-mutuel wagering on live racing from this raceway and simulcast horse races.  The casino facility includes several bars, restaurants and retail outlets, all of which are located at our entertainment complex situated on approximately 69 acres of owned land. Dover Downs Hotel & Casino is open 24 hours per day.

 

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Our Mile High USA properties are located in Aurora, Colorado. This location serves the central Colorado market, including the Denver area. Arapahoe Park is a seasonal live horse racing track with a racebook, concession stands, a bar, outside grill and retail store. It also hosts simulcasting of thoroughbred and greyhound racing from around the country. Arapahoe Park holds 13 OTB licenses, certain of which it currently licenses to third parties. Havana Park is an OTB site, which we operate in Aurora, Colorado. The Havana Park property is leased through September 28, 2022 at an annual rent of $162,508 and contains two five-year options.

 

Our headquarters is located in Lincoln, Rhode Island, within our Twin River Casino Hotel property.

 

ITEM 3.    LEGAL PROCEEDINGS

 

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business.

 

On January 9, 2019, Chatham Asset Management, LLC and certain of its affiliates, which collectively own approximately 15% of our outstanding common stock as of December 31, 2018, filed an amended action in the Delaware Chancery Court against our directors and certain officers asserting individual and derivative claims. The complaint alleges that the defendants breached their fiduciary obligations by launching a tender offer in 2016 to benefit their own personal interests and the interests of one shareholder, made false and misleading disclosures in connection with the tender offer and improperly made payments to themselves in respect of the settlement of certain Twin River awards. The defendants believe the plaintiffs’ claims are without merit and intend to vigorously defend the action, and we believe the action will not have a material adverse effect on our results of operations.

 

ITEM 4.    MINE SAFETY DISCLOSURES

 

Not applicable.

 

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PART II

 

ITEM 5.    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information for Our Common Stock

 

Shares of our common stock currently trade on the NYSE under the symbol “TRWH.” Our stock began trading on the NYSE on March 29, 2019. There were 49 holders of record of our common stock on March 27, 2019.

 

Dividend Policy

 

We have not historically paid regular dividends. We expect to pay a quarterly cash dividend initially targeted at approximately 1%, on an annual basis, of the common stock price beginning later this year. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon, among other factors, our earnings, cash requirements, financial condition, requirements to comply with the covenants under our debt instruments and the Regulatory Agreement, legal considerations, and other factors that our Board deems relevant.

 

Equity Compensation Plans

 

See Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” of this Annual Report on Form 10-K for information regarding securities authorized for issuance under our equity compensation plans.

 

Recent Sales of Unregistered Securities

 

Set forth below is information regarding securities sold or granted by us during the year ended December 31, 2018 that were not registered under the Securities Act. Also included is the consideration, if any, received by us for such securities and information relating to the section of the Securities Act, or rule of the SEC, under which exemption from registration was claimed for such sales and grants. Such information is rounded to the nearest whole number, except per share data.

 

On January 16, 2018, a member of management and certain employees exercised stock options granted under the 2010 Option Plan to purchase a total of 288,000 shares of our common stock at a price of $2.42 per share for an aggregate purchase price of $695,520.

 

On March 1, 2018, a member of management and an employee exercised stock options granted under the 2010 Option Plan to purchase a total of 80,000 shares of our common stock at a price of $2.42 per share for an aggregate purchase price of $193,200.

 

On December 17, 2018, certain members of management and an employee exercised stock options granted under the 2010 Option Plan to purchase a total of 1,403,096 shares of our common stock at a price of $2.42 per share for an aggregate purchase price of $3,388,477.

 

The transactions above were deemed to be exempt from registration under the Securities Act in reliance upon Rule 701 promulgated under Section 3(b) of the Securities Act as transactions pursuant to benefit plans and contracts relating to compensation as provided under Rule 701.

 

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Issuer Purchases of Equity Securities

 

The following table provides information with respect to purchases made by Twin River of our equity securities through December 31, 2018.

 

Period 

Total number of
shares (or units)
purchased

(a)

   Average price paid
per share (or unit)
   Total number of
shares (or units)
purchased as part
of publicly
announced plans or
programs
   Maximum number
(or approximate
dollar value) of
shares (or units)
that may yet be
purchased under
the plans or
programs
 
December 1-31, 2018   338,648   $23.50        
Total   338,648   $23.50        

 

(a) In December 2018, certain members of management and certain employees sold an aggregate of 338,648 shares of Twin River common stock to Twin River for total proceeds of approximately $8.0 million. The proceeds were used to pay loans and related taxes for previously granted stock options.

 

ITEM 6.    SELECTED FINANCIAL DATA

 

The selected consolidated financial data presented below has been derived from our audited consolidated financial statements. This information should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited Consolidated Financial Statements and accompanying notes thereto.

 

   Years Ended December 31, 
(In thousands, except per share data)  2018 (a)   2017   2016 
Statement of Operations Data:               
Net revenue  $437,537   $421,053   $414,817 
Income from operations   120,649    123,723    112,456 
Income before provision for income taxes   97,797    101,108    83,392 
Net income   71,438    62,247    44,839 
Net income applicable to common stockholders   72,078    59,903    43,811 
Net income per common share               
Basic  $1.95   $1.64   $1.17 
Diluted  $1.87   $1.56   $1.12 
                
Balance Sheet Data:               
Cash and cash equivalents  $77,580   $85,814   $55,360 
Total assets   782,352    718,134    640,891 
Long-term debt, net of current maturities   390,578    357,875    404,311 
Total shareholders' equity   298,660    176,803    115,568 

 

(a)  Includes the results of Tiverton Casino Hotel from its opening on September 1, 2018 and the results of Newport Grand up until its closing on August 28, 2018.

 

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review Item 1A. “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

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Overview

 

We are a Delaware corporation based in Lincoln, Rhode Island, and a multi-jurisdictional owner of gaming and racing facilities. We currently own and manage the Twin River Casino Hotel, in Lincoln, Rhode Island, which is our flagship property, the Tiverton Casino Hotel in Tiverton, Rhode Island, the Hard Rock Biloxi in Biloxi, Mississippi, Dover Downs Hotel & Casino in Dover, Delaware and Mile High USA in Aurora, Colorado. On September 1, 2018, we opened the Tiverton Casino Hotel following the closure of the Newport Grand in August 2018. On March 28, 2019, we completed the Merger with Dover Downs and now own and operate the Dover Downs Hotel & Casino in Dover, Delaware. As of March 28, 2019, we had an aggregate of over 400,000 square feet of gaming space, approximately 8,500 slot machines, approximately 260 gaming tables, approximately 65 stadium gaming positions, approximately 40 dining establishments, 20 bars, three entertainment venues and approximately 1,200 hotel rooms.

 

As of December 31, 2018, we had four operating segments: Twin River Casino Hotel, Hard Rock Biloxi, Tiverton Casino Hotel and Mile High USA, and two reportable segments, Rhode Island and Biloxi. In addition, prior to its closing in August 2018, we operated a fifth, immaterial operating segment, Newport Grand. Twin River Casino Hotel, Newport Grand and Tiverton Casino Hotel have been aggregated to form the Rhode Island reportable segment. Our Biloxi reportable segment includes only Hard Rock Biloxi. We report Mile High USA, an immaterial operating segment, and shared services provided by our management subsidiary, in the “Other” category. We anticipate that Dover Downs will operate as a separate operating segment and we are still evaluating the reporting segment structure inclusive of Dover Downs.

 

Results of Operations

 

The following table presents, for the periods indicated, certain income and expense items:

 

   Years Ended December 31, 
(In millions)  2018   2017   2016 
Net revenue  $437.5   $421.1   $414.8 
Income from operations   120.6    123.7    112.5 
Net income   71.4    62.2    44.8 

 

The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of net revenues:

 

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   Years Ended December 31, 
   2018   2017   2016 
Net revenue   100.0%   100.0%   100.0%
Gaming, racing, hotel, food and beverage expenses   29.6%   28.4%   29.8%
Advertising, general and administrative   35.7%   36.9%   35.7%
Other operating costs and expenses   2.1%   0.0%   1.4%
Depreciation and amortization   5.1%   5.3%   6.0%
Total operating costs and expenses   72.4%*   70.6%   72.9%
Income from operations   27.6%   29.4%   27.1%
Other income (expense)               
Interest expense   5.3%   5.4%   6.4%
Other, net   0.0%   0.0%   0.6%
Total other expense   5.2%*   5.4%   7.0%
Income before provision for income taxes   22.4%   24.0%   20.1%
Provision for income taxes   6.0%   9.2%   9.3%
Net income   16.3%*   14.8%   10.8%

 

* - Reflects Rounding

 

Segment Performance

 

The following table sets forth certain financial information associated with results of operations for the years ended December 31, 2018, 2017 and 2016. Non-gaming revenue includes hotel, food and beverage and other revenue. Non-gaming expenses include hotel, food and beverage and other expenses.

 

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(In thousands)  Years Ended December 31,   2018 over 2017   2017 over 2016 
   2018   2017   2016   $ Change   % Change   $ Change   % Change 
Revenue:                                   
Gaming and Racing Revenue                                   
Rhode Island  $249,922   $239,126   $230,712   $10,796    4.5%  $8,414    3.6%
Biloxi   81,614    79,570    76,609    2,044    2.6%   2,961    3.9%
Other   9,362    10,132    11,701    (770)   (7.6)%   (1,569)   (13.4)%
Total Gaming and Racing Revenue   340,898    328,828    319,022    12,070    3.7%   9,806    3.1%
                                    
Non-Gaming Revenue                                   
Rhode Island   52,730    48,733    49,001    3,997    8.2%   (268)   (0.5)%
Biloxi   43,523    43,124    46,468    399    0.9%   (3,344)   (7.2)%
Other   386    368    326    18    4.9%   42    12.9%
Total Non-Gaming Revenue   96,639    92,225    95,795    4,414    4.8%   (3,570)   (3.7)%
Net Revenue   437,537    421,053    414,817    16,484    3.9%   6,236    1.5%
                                    
Operating costs and expenses:                                   
Gaming and Racing Expenses                                   
Rhode Island  $47,567   $41,961   $41,312   $5,606    13.4%  $649    1.6%
Biloxi   27,325    26,753    26,679    572    2.1%   74    0.3%
Other   5,937    6,378    7,904    (441)   (6.9)%   (1,526)   (19.3)%
Total Gaming and Racing Expenses   80,829    75,092    75,895    5,737    7.6%   (803)   (1.1)%
                                    
Non-Gaming Expenses                                   
Rhode Island   26,798    23,611    25,339    3,187    13.5%   (1,728)   (6.8)%
Biloxi   21,626    20,842    22,210    784    3.8%   (1,368)   (6.2)%
Other   88    91    99    (3)   (3.3)%   (8)   (8.1)%
Total Non-Gaming Expenses   48,512    44,544    47,648    3,968    8.9%   (3,104)   (6.5)%
                                    
Advertising, general and administrative                                   
Rhode Island   90,175    80,327    80,281    9,848    12.3%   46    0.1%
Biloxi   39,331    40,122    40,814    (791)   (2.0)%   (692)   (1.7)%
Other   26,517    34,887    26,998    (8,370)   (24.0)%   7,889    29.2%
Total Advertising, general and administrative   156,023    155,336    148,093    687    0.4%   7,243    4.9%
                                    
Margins:                                   
Gaming and Racing Expenses as a percentage of Gaming and Racing Revenue   24%   23%   24%        1%        (1)%
Non-Gaming Expenses as a percentage of Non-gaming Revenue   50%   48%   50%        2%        (2)%
Advertising, general and administrative as a percentage of Net Revenue   36%   37%   36%        (1)%        1%

 

Year ended December 31, 2018 compared to year ended December 31, 2017

 

Net revenue

 

Net revenue for the year ended December 31, 2018 increased 3.9% to $437.5 million, from $421.1 million in 2017. This increase was primarily attributable to increases in gaming and racing revenue and non-gaming revenue in the Rhode Island segment. The increase in gaming and racing revenue of $10.8 million in the Rhode Island segment is primarily attributable to a $14.4 million increase which was the result of opening Tiverton Casino Hotel on September 1, 2018, partially offset by a decrease of $4.2 million which was the result of closing Newport Grand on August 28, 2018. The increase in non-gaming revenue in the Rhode Island segment of $4.0 million is primarily attributable to a $3.2 million increase as a result of opening the Tiverton Casino Hotel, partially offset by a decrease of $1.1 million which was the result of closing Newport Grand. Additionally, non-gaming revenue increased $0.8 million due to the opening of the hotel in October at our Twin River Casino Hotel property, and to a lesser extent, due to increases in merchandise, cash services and entertainment revenue.

 

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Gaming and racing expenses for the year ended December 31, 2018 increased $5.7 million, or 7.6%, from $75.1 million in 2017. This increase was primarily attributable to an increase in the Rhode Island segment due to a $3.7 million increase from opening the Tiverton Casino Hotel Casino offset by a decrease of $1.0 million resulting from the closing of Newport Grand. The increase is also partially due to higher labor and benefits costs of $1.8 million and expenses associated with new premium games of $0.5 million. As a percentage of gaming and racing revenue, costs remained relatively consistent.

 

Non-gaming expenses for the year ended December 31, 2018 increased $4.0 million from $44.5 million, or 8.9%, in 2017. This increase was primarily attributable to an increase in the Rhode Island segment due to a $2.3 million increase from opening the Tiverton Casino Hotel and a $1.4 million pension audit adjustment for out-of-period unpaid contributions partially offset by a decrease of $0.8 million from closing Newport Grand. As a percentage of non-gaming revenue, costs remained relatively consistent.

 

Advertising, general and administrative

 

Advertising, general and administrative expenses for the year ended December 31, 2018 increased $0.7 million from $155.3 million, or 0.4%, in 2017. This increase was primarily attributable to a $9.8 million increase in the Rhode Island segment due to $3.7 million incurred for the pension plan withdrawal liability, $1.1 million of higher marketing expense incurred at the Twin River Casino Hotel and a $6.3 million increase resulting from the opening of the Tiverton Casino Hotel, offset by a decrease of $2.4 million resulting from closing Newport Grand. This increase was partially offset by an $8.4 million decrease in “Other” due to a $19.3 million decrease in share-based compensation expense for the decreased fair value of stock options classified as liability awards that are recorded at fair value at the end of each reporting period, partially offset by $6.6 million of costs related to the Merger and preparations to become a publicly traded company and higher corporate professional fees. As a percentage of net revenue, costs remained constant.

 

Other operating costs and expenses

 

Expansion and pre-opening costs for the year ended December 31, 2018 increased to $2.7 million from $0.2 million in 2017, primarily due to non-capitalized pre-opening costs associated with the Tiverton Casino Hotel which opened on September 1, 2018. We also incurred a disposal loss of $6.5 million for the year ended December 31, 2018 in connection with the sale of the Newport Grand land and building.

 

Depreciation and amortization of intangibles

 

Depreciation and amortization of intangibles expense for the year ended December 31, 2018 was $22.3 million, which was flat compared to $22.2 million in 2017. We expect that depreciation and amortization expense will increase in 2019 as we will have a full year of expense related to both the hotel at Twin River Casino Hotel and the Tiverton Casino Hotel which opened in late 2018, coupled with additional expense related to the Merger.

 

Income from operations

 

Income from operations was $120.6 million for the year ended December 31, 2018 compared to $123.7 million in 2017. As a percentage of net revenue income from operations decreased from 29.4% to 27.6% primarily driven by the expansion and pre-opening costs related to both the hotel at Twin River Casino and the Tiverton Casino Hotel.

 

Other income (expense)

 

Total Other expense, which is primarily comprised of interest expense of $23.0 million for the year ended December 31, 2018, remained relatively consistent with the interest expense of $22.8 million in 2017, as higher capitalized interest and lower average debt levels in 2018 were offset by higher interest rates year-over-year.

 

Provision for Income Taxes

 

Provision for income taxes for the year ended December 31, 2018 decreased $12.5 million from $38.9 million in 2017 to $26.4 million. This decrease is primarily driven by the lower federal income tax rate associated with the Tax Cut and Jobs Act (“the TCJA”).

 

Net Income

 

Reported net income for the year ended December 31, 2018 was $71.4 million, an increase of 14.8% from $62.2 million in 2017. As a percentage of net revenue net income increased from 14.8% in 2017 to 16.3% for the year ended December 31, 2018.

 

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Year ended December 31, 2017 compared to year ended December 31, 2016

 

Net revenue

 

Gaming and racing revenue for the year ended December 31, 2017 increased $9.8 million from $319.0 million, or 3.1%, in 2016. This increase was primarily attributable to an increase in the Rhode Island segment of $8.4 million primarily due to a $6.8 million increase in table games revenue and an increase in the Biloxi segment of $3.0 million primarily driven by a $2.6 million reduction in food and beverage incentives provided to gaming patrons. This increase is partially offset by a decrease in “Other” of $1.6 million which was primarily attributable to a decrease in racing revenues at Mile High USA due to lower commissions from licensed OTB sites as the OTB location that generated the highest handle in 2016 closed in the first quarter of 2017.

 

Non-gaming revenue for the year ended December 31, 2017 decreased $3.6 million from $95.8 million, or 3.7%, in 2016. This decrease was primarily attributable to a $3.3 million decrease in the Biloxi segment primarily resulting from a $3.0 million reduction in revenue generated from the buffet due to fewer complimentary buffet offers and the elimination of breakfast hours for the buffet. There was also a decrease of $0.3 million in the Rhode Island segment primarily due to a decrease in food and beverage revenue of $1.6 million primarily due to a decrease in buffet revenue from decreased complimentary buffets offered to gaming patrons. This decrease was partially offset by approximately a $1.3 million increase in automatic teller machine commissions.

 

Operating costs and expenses

 

Gaming and racing expenses for the year ended December 31, 2017 decreased $0.8 million from $75.9 million, or 1.1%, in 2016. This decrease was primarily attributable to a decrease of $1.5 million resulting from the lower racing expenses for Mile High USA in “Other”, which is consistent with a decrease in racing revenue. As a percentage of gaming and racing revenue, costs remained relatively consistent.

 

Non-gaming expenses for the year ended December 31, 2017 decreased $3.1 million from $47.6 million, or 6.5%, in 2016. This decrease was primarily attributable to a decrease of $1.7 million in the Rhode Island segment primarily due to a decrease in complimentary buffets offered to gaming patrons consistent with decreased Non-gaming revenue, and $1.4 million in the Biloxi segment due to a decrease in complimentary buffets offered to gaming patrons and the elimination of breakfast hours, consistent with decreased non-gaming revenue. As a percentage of non-gaming and racing revenue, costs remained relatively consistent.

 

Advertising, general and administrative

 

Advertising, general and administrative expenses for the year ended December 31, 2017 increased $7.2 million from $148.1 million, or 4.9%, in 2016. This increase is primarily attributable to a $7.9 million increase in “Other” for share-based compensation expense for stock options classified as liability awards as a result of an increase in fair value. As a percentage of net revenue, costs remained relatively consistent

 

Other operating costs and expenses

 

Expansion and pre-opening costs were $0.2 million and $0.6 million for the years ended December 31, 2017 and 2016, respectively. The costs in 2016 were primarily related to the Tiverton Casino Hotel prior to us receiving state and town referendum approval in November 2016 to open the new Tiverton casino.

 

Referendum costs for the year ended December 31, 2017 decreased $5.0 million from 2016 primarily due to $5.0 million of referendum costs related to moving the gaming license from Newport Grand to the Tiverton Casino Hotel recorded in 2016.

 

Depreciation and amortization of intangibles

 

Depreciation and amortization of intangibles of $22.2 million represented a decrease of $2.9 million for the year ended December 31, 2017 from 2016. This decrease is primarily attributable to the decrease in depreciation of property and equipment as furniture and fixtures included in the Biloxi segment that were fully depreciated as of July 2017 and similar assets included in the Rhode Island segment were fully depreciated as of December 2016.

 

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Income from operations

 

Our income from operations was $123.7 million for the year ended December 31, 2017 compared to $112.5 million in 2016.

 

Other income (expense)

 

Total other expense for the year ended December 31, 2017 decreased $6.4 million, or 22.2%, from $29.1 million in 2016 primarily due to a decrease in interest expense of $3.8 million resulting from lower debt balances and lower interest rates, and a decrease in fair value of contingent value rights of $2.7 million due to the majority of the contingent value rights being settled in 2016, and the remaining rights having no further value as of December 31, 2016.

 

Provision for income taxes

 

Provision for income taxes for the year ended December 31, 2017 remained consistent with the comparable period in 2016 at $38.9 million. Although income before the provision for income taxes increased for the year ended December 31, 2017 from the comparable period in 2016, the resulting increase in provision for income taxes was offset by the reduction in the deferred tax rate adjustment resulting from the TCJA.

 

Net income

 

Reported net income in 2017 was $62.2 million, an increase of 38.8%, from $44.8 million in 2016.

 

Liquidity and Capital Resources

 

Cash flow summary

 

(In thousands)  Years Ended December 31, 
   2018   2017   2016 
Net cash provided by operating activities  $109,244   $107,832   $70,692 
Net cash used in investing activities   (117,600)   (47,485)   (12,177)
Net cash used in financing activities   (3,429)   (28,933)   (85,869)

 

Net cash provided by operating activities

 

Net cash provided by operating activities for the year ended December 31, 2018 was $109.2 million, an increase of $1.4 million compared to the year ended December 31, 2017. This increase was primarily attributable to a $7.7 million increase in net income adjusted for non-cash items that remained relatively consistent, up $1.5 million, for the year ended December 31, 2018 compared to 2017. This increase is partially offset by a $6.3 million decrease in cash provided by operating assets and liabilities, primarily driven by a $6.3 million increase in cash used in prepaid expenses and other assets related to prepaid taxes, and an increase in accounts receivable of $4.0 million resulting primarily from higher balances due from the State of Rhode Island in connection with the Tiverton Casino Hotel, including a one-time $1.8 million receivable associated with construction of a roundabout built in conjunction with the Tiverton Casino Hotel. These decreases were partially offset by an increase in cash provided by accounts payable and accrued expenses of $2.7 million due to incrementally higher accounts payable and accrued balances associated with the Tiverton Casino Hotel as compared to Newport Grand.

 

Net cash provided by operating activities for the year ended December 31, 2017 was $107.8 million, an increase of $37.1 million compared to the year ended December 31, 2016. This increase was primarily attributable to a $24.2 million increase in cash provided by operating assets and liabilities, primarily driven by (i) an increase of  $9.3 million in cash provided by prepaid expenses and other assets relating to tax payments, including $4.9 million taxes prepaid during the year ended December 31, 2016 that were used to make $4.9 million of tax payments during the year ended December 31, 2017, and (ii) an increase of  $13.7 million in cash provided by accrued liabilities primarily attributable to higher cash used in operating activities for the year ended December 31, 2016 resulting from a payment of  $9.7 million to settle litigation for the contingent value rights in the year ended December 31, 2016, and an increase in accrued compensation of  $3.4 million at December 31, 2017 as compared to December 31, 2016 due to timing of bonus payments. This increase was also due to a $13.0 million increase in net income adjusted for a $4.4 million decrease in non-cash items. The decrease in non-cash items was primarily due to a reduction in the change in deferred taxes of  $9.5 million driven by the reduction in the tax rate resulting from the TCJA, discussed above, a reduction in depreciation expense and the decrease in contingent value rights of  $2.9 million and $2.7 million, respectively, discussed above, partially offset by an increase of  $11.5 million in share-based compensation expense, primarily due to $7.9 million related to liability awards that are recorded at fair value at the end of each reporting period, discussed above, and $3.4 million for a reversal of share-based compensation expense for the year ended December 31, 2016 for Incentive Award Agreements that were cancelled and settled in cash.

 

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While we believe that our net cash flows from operating activities and funds available from our credit facility will be sufficient to provide for our working capital needs and capital spending requirements for the foreseeable future, we will need to refinance or extend the maturity of its outstanding revolving credit facility prior to its expiration in January 2020. In addition, with the Expanded Gaming Act that was signed into law in Massachusetts, we expect to face increased competition in the Rhode Island market. In June 2015 the slots-only Plainridge Park Casino in Plainville, Massachusetts opened and in the third quarter of 2018, MGM Resorts International opened the $1.0 billion Springfield resort casino in Springfield, Massachusetts. We expect to face further competition with the expected opening of the $2.5 billion Encore Boston Harbor which is scheduled to open by June 2019. By focusing on attracting and maintaining customers and increasing our marketing, we believe we will continue to be highly competitive in the market.

 

Net cash used in investing activities

 

Net cash used in investing activities for the year ended December 31, 2018 was $117.6 million, an increase of $70.1 million compared to the year ended December 31, 2017. The change was primarily driven by an increase in capital expenditures for the Tiverton Casino Hotel and the new hotel at Twin River Casino Hotel of $60.2 million and $17.5 million, respectively, partially offset by proceeds of $7.1 million from the sale of the land and building relating of the closing of the Newport Grand and an increase in the repayments of the loans to officers and directors related to taxes on stock options of $5.0 million. All loans to officers and directors were repaid during 2018.

 

Net cash used in investing activities for the year ended December 31, 2017 was $47.5 million, an increase of $35.3 million compared to the year ended December 31, 2016. The change was primarily driven by an increase in capital expenditures for the new casino in Tiverton and the new hotel in Lincoln of $34.3 million and $4.7 million, respectively, partially offset by an increase of $2.2 million of loans to officers and directors related to taxes on stock options. There was not an increase in the principal amount of loans to officers and directors as of December 31, 2017 from December 31, 2016.

 

Net cash used in financing activities

 

Net cash used in financing activities for the year ended December 31, 2018 was $3.4 million, a decrease of $25.5 million from 2017. This decrease was primarily driven by an increase in borrowings of $31.0 million, which was partially offset by an increase in repayments of $4.0 million, and an increase in the cash received for stock options exercised via repayment of non-recourse notes of $4.0 million. This increase was partially offset by an increase of stock repurchases of $5.7 million related to equity awards put to us.

 

Net cash used in financing activities for the year ended December 31, 2017 was $28.9 million, a decrease of $56.9 million from 2016. The decrease was primarily due to a $61.7 million contingent value rights tender offer in 2016, a $17.7 million decrease in stock repurchased by us and a $10.3 million net decrease in principal payments on long-term debt. This decrease was partially offset by a $35.0 million decrease in borrowings.

 

Working Capital

 

At December 31, 2018, cash and cash equivalents and restricted cash totaled $81.4 million, compared to $93.2 million at December 31, 2017. The decrease of $11.8 million is primarily attributable to capital expenditures of $128.9 million, including the Tiverton Casino Hotel and the new hotel at Twin River Casino Hotel, partially offset by cash provided by operating activities of $109.2 million and proceeds from the sale of Newport Grand land and building of $7.1 million.

 

At December 31, 2018, net working capital balance was $46.9 million, compared to $17.8 million at December 31, 2017. The increase is primarily attributable to the decrease in the current portion of the term loan of $29.7 million, as a mandatory prepayment was due on December 31, 2017, as well as a decrease of $10.9 million in accounts payable and accrued liabilities balances primarily driven by the completion of the Tiverton Casino Hotel and the completion of the new hotel at Twin River Casino Hotel. These decreases in current liabilities were partially offset by a decrease in cash and cash equivalents and restricted cash, discussed above.

 

At December 31, 2017, cash and cash equivalents and restricted cash totaled $93.2 million, compared to $61.8 million at December 31, 2016. This increase is primarily attributable to cash provided by operating activities of $107.8 million, partially offset by capital expenditures of $47.9 million, including the Tiverton Casino Hotel and the new hotel at Twin River Casino Hotel, and net principal payments on long-term debt of $24.7 million.

 

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At December 31, 2017, net working capital balance was $17.8 million, compared to $40.2 million at December 31, 2016. The decrease is primarily attributable to an increase of $28.3 million in accounts payable and accrued liabilities balances primarily driven by increased capital expenditures for the new casino in Tiverton and the hotel at Twin River Casino Hotel discussed above, and the increase in the current portion of the term loan of $22.6 million, for a payment to be made in March 2018, partially offset by an increase in cash and cash equivalents and restricted cash, discussed above.

 

Additionally, we have a $150.0 million revolving credit facility, of which $45.0 million was available to borrow at December 31, 2018, as discussed further in “Note 7. Long-Term Debt.” As a result, we believe that our operations have adequate financial resources to satisfy current liquidity needs.

 

We assess liquidity in terms of the ability to generate cash to fund operating, investing and financing activities. The primary ongoing cash requirements will be to fund operations, capital expenditures, interest payments and investments in line with our business strategy. In addition, we expect to pay a quarterly cash dividend initially targeted at approximately 1% of the common stock price beginning later in 2019. We believe that future operating cash flows will be sufficient to meet future operating and internal investing cash for the next twelve months. Furthermore, existing cash balances and availability of additional borrowings under the revolving credit facility provide additional potential sources of liquidity should they be required. Our revolving credit facility matures in January 2020 and our term loan matures in July 2020, and we expect to refinance those facilities prior to their maturity dates. We are also considering a potential tender for a portion of our outstanding common stock or another transaction to provide a return of capital to shareholders. The amount, timing and terms of any such transaction, if any, will be determined at that time and be based upon prevailing market conditions, our financial condition and prospects and other factors, including conditions in the bank, credit and debt capital markets.

 

Financing Arrangements

 

There was $397.4 million outstanding under the credit facility at December 31, 2018, including $342.4 million principal amount of a term loan due July 2020 with an interest rate of LIBOR plus a margin of 3.50% (6.30% at December 31, 2018), and $55.0 million outstanding under the $150.0 million revolving credit facility that expires in January 2020, with an interest rate of LIBOR plus a margin of 3.50% (6.26% at December 31, 2018), as discussed further in “Note 7. Long-Term Debt” to the Twin River Consolidated Financial Statements included in this Annual Report on Form 10-K.

 

We are in compliance with the covenants of all of its debt agreements as of December 31, 2018.

 

Contractual Obligations

 

The following table has been included to assist understanding our debt and similar obligations as of December 31, 2018:

 

(In thousands)  Total  

Less than

1 year

   1-3 years   4-5 years  

More than

5 years

 
Current and long-term obligations, at par  $342,439   $3,595   $338,844   $-   $- 
Revolving credit facility obligations, at par   55,000    -    55,000    -    - 
Interest (a)   36,274    24,932    11,342    -    - 
Operating Leases   37,469    2,941    3,996    3,280    27,252 
Total contractual obligations  $471,182   $31,468   $409,182   $3,280   $27,252 

  

 

(a)Interest for the term loan with obligations at par of $342,439 is calculated at the December 31, 2018 interest rate of 6.30%. Interest for the revolving credit facility with obligations at par value of $55,000 is calculated at the December 31, 2018 weighted average interest rate of 6.26%.

 

Off-Balance Sheet Arrangements

 

Except for obligations under operating leases and letters of credit described above under “Contractual Obligations” and performance obligations incurred in the ordinary course of business, we are not party to any off-balance sheet arrangements involving guarantee, contingency or similar obligations to entities whose financial statements are not consolidated with our results, and that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that would be material to investors in our securities.

 

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Capital Expenditures

 

For the year ended December 31, 2018, capital expenditures, were $128.9 million, including $94.6 million for the Tiverton Casino Hotel and $22.4 million for the new hotel at Twin River Casino Hotel. We anticipate that 2019 capital spending will be approximately $23 million. The decrease in expected capital expenditures from 2018 to 2019 is primarily driven by the completion of Tiverton Casino Hotel and the new hotel for Twin River Casino Hotel during 2018, partially offset by an increase related to planned capital expenditures after the Merger and $2 million remaining spending for Tiverton Casino Hotel.

 

Critical Accounting Policies and Estimates

 

The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. The SEC has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results and require our most difficult, complex or subjective judgments or estimates. Based on this definition, we believe our critical accounting policies are: (i) revenue recognition, (ii) valuing intangible assets, (iii) valuing goodwill, (iv) accounting for share based compensation, (v) valuation of our common stock and (vi) income taxes. For all financial statement periods presented, there have been no material modifications to the application of these critical accounting policies and estimates.

 

Revenue Recognition

 

We account for revenue earned from contracts with customers under ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). We generate revenue from five principal sources: gaming services, hotel, racing, food and beverage and other.

 

Gaming revenue includes Twin River Casino Hotel’s, Tiverton Casino Hotel’s (upon its opening on September 1, 2018) and Newport Grand’s (until its closing on August 28, 2018) share of VLT revenue as determined by their respective master VLT contracts with the State of Rhode Island. Twin River Casino Hotel is entitled to a 28.85% share of VLT revenue on the initial 3,002 units and a 26.00% share on VLT revenue generated from units in excess of 3,002. Tiverton Casino Hotel is, and Newport Grand was, entitled to receive a percentage of VLT revenue that is equivalent to the percentage received by Twin River Casino Hotel. Gaming revenue also includes Twin River Casino Hotel’s and Tiverton Casino Hotel’s share of table games revenue whereby Twin River Casino Hotel and Tiverton Casino Hotel are entitled to an 83.5% share of table games revenue generated as of December 31, 2018. Revenue is recognized when the wager is complete, which is when the customer has received the benefits of our gaming services and we have a present right to payment. We record revenue on a net basis which is the percentage share of VLT revenue received from the State of Rhode Island, as we act as an agent in operating the gaming service on behalf of the State of Rhode Island.

 

Gaming revenue also includes Hard Rock Biloxi’s casino revenue, which is the aggregate net difference between gaming wins and losses, with liabilities recognized for funds deposited by customers before gaming play occurs, for chips outstanding and “ticket-in, ticket-out” coupons in the customers’ possession, and for accruals related to the anticipated payout of progressive jackpots. Progressive slot machines, which contain base jackpots that increase at a progressive rate based on the number of credits played, are charged to revenue as the amount of the progressive jackpots increase.

 

Gaming services contracts have two performance obligations for those customers earning incentives under our player loyalty programs and a single performance obligation for customers who do not participate in the programs. We apply a practical expedient by accounting for our gaming contracts on a portfolio basis and, as such, wagers have similar characteristics and we reasonably expect the effects on the consolidated financial statements of applying the revenue recognition guidance to the portfolio do not differ materially from that which would result if applying the guidance to an individual wagering contract. For purposes of allocating the transaction price in a wagering contract between the wagering performance obligation and the obligation associated with incentives earned under loyalty programs, we allocate an amount to the loyalty program contract liability based on the stand-alone selling price of the incentives earned for a hotel room stay, food and beverage or other amenities. The performance obligations for the incentives earned under the loyalty programs are deferred and recognized as revenue when the customer redeems the incentive. When redeemed, revenue is recognized in the department that provides the goods or service. After allocating revenue to other goods and services provided as part of casino wager contracts, we record the residual amount to gaming revenue 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.

 

Racing revenue includes Twin River Casino Hotel’s, Tiverton Casino Hotel’s (upon its opening on September 1, 2018) Newport Grand’s (until its closing on August 28, 2018) and Mile High USA’s share of wagering from live racing and the import of simulcast signals. As of March 28, 2019, racing revenue also includes Dover Downs Hotel & Casino’s share of wagering from live racing and the import of simulcast signals. Racing revenue is recognized when the wager is complete based on an established take out percentage. We function as an agent to the pari-mutuel pool. Therefore, fees and obligations related to our share of purse funding, simulcasting fees, tote fees, pari-mutuel taxes and other fees directly related to our racing operations are reported on a net basis and included as a deduction to racing revenue.

 

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Hotel revenue is recognized at the time of occupancy, which is when the customer obtains control through occupancy of the room. Advance deposits for hotel rooms are recorded as liabilities until revenue recognition criteria are met.

 

Food and beverage revenue are recognized at the time the goods are sold from Company-operated outlets.

 

Other revenue includes minimum rental revenue from leased outlets. Percentage rental revenues are recognized in the periods in which the tenants exceed their respective percentage rent thresholds. All other revenues are recognized at the time the goods are sold or the service is provided.

 

Sales tax and other taxes collected on behalf of governmental authorities are accounted for on a net basis and are not included in net revenue or operating expenses.

 

Valuation of Intangible Assets

 

As a result of “fresh start accounting”, we adjusted the Twin River Casino Hotel intangible assets to reflect their fair values on November 5, 2010 (the “Emergence Date”). Intangible assets consist of a Rhode Island VLT license, the Master Video Lottery Terminal Contract (the “Contract”) with the Division of Lotteries for the State of Rhode Island and the State of Rhode Island Department of Transportation, as amended, the Twin River trade name and the Twin River Casino Hotel rated player relationships. The Rhode Island VLT license has an indefinite life and therefore is not being amortized. The Contract for the VLTs, the Twin River Casino Hotel rated player relationships and the Twin River trade name are being amortized using the straight-line method based on their estimated useful lives from the Emergence Date.

 

Intangible assets identified in connection with the Hard Rock Biloxi acquisition include a license agreement with Hard Rock Hotel Licensing, Inc., rated player relationships, pre-bookings and origination costs and leases in place which are amortized over their estimated useful lives using the straight-line method.

 

Intangible assets identified in connection with the Newport Grand acquisition include a Rhode Island VLT license, rated player relationships and the Newport Grand trade name. The Rhode Island VLT license has an indefinite life and therefore is not being amortized. The Newport Grand rated player relationships and trade name are being amortized over their estimated useful lives using the straight-line method. Intangible assets for Newport Grand were immaterial when Newport Grand closed on August 28, 2018.

 

We periodically evaluate the remaining useful lives of our finite-lived intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization.

 

Intangible assets not subject to amortization are reviewed for impairment annually and between annual test dates whenever events or changes in circumstances may indicate that the carrying amount of the related asset may not be recoverable.

 

Valuation of Goodwill

 

Goodwill represents the excess of reorganization value over the fair market value of Twin River Casino Hotel net assets on the Emergence Date and the excess of the Hard Rock Biloxi and Newport Grand purchase prices over the respective fair values of tangible and identifiable assets acquired and liabilities assumed. We are required to test goodwill for impairment at least annually, and between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We have elected to perform our annual tests for indications of goodwill impairment as of the first day of the fourth quarter of each year. We test for goodwill impairment at the reporting unit level, which is at or one level below the operating segment level.

 

When assessing goodwill for impairment, first, qualitative factors are assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. The quantitative goodwill test compares the estimated fair value of each reporting unit with its estimated net book value (including goodwill and identifiable intangible assets). If the reporting unit’s estimated fair value exceeds its estimated net book value, goodwill is not impaired. Prior to the adoption of Accounting Standards Update (“ASU”) 2017-04, Intangibles — Goodwill and Other (Topic 350) — Simplifying the Test for Goodwill Impairment for our 2017 goodwill impairment test, if a reporting unit’s estimated fair value did not exceed its carrying value, an impairment was recognized if the implied fair value of goodwill was less than its carrying value. After the adoption of this new standard, an impairment is recognized if the estimated fair value of a reporting unit is less than its estimated net book value, in an amount not to exceed the carrying value of the reporting unit’s goodwill.

 

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Share-Based Compensation

 

We record share-based compensation in accordance with ASC 718, Compensation — Stock Compensation, and recognize share-based compensation expense in the period in which the employee or director is required to provide service, which is generally over the vesting period of the individual share-based payment award. Compensation expense for awards with graded vesting is recognized over the requisite service period on an accelerated basis, as if each tranche were a separate award. Compensation expense for awards with performance conditions is based on the target number of shares of common stock and our stock price on the date of grant and subsequently adjusts expense based on actual and forecasted performance compared to planned targets. Compensation cost previously recognized on forfeited awards is reversed when the forfeitures occur.

 

We classify stock awards as either an equity award or a liability award. Equity classified awards are valued as of the grant date using either an observable market price or a valuation methodology. Liability classified awards are valued at fair value at each reporting date.

 

Share-based payment awards which contained certain repurchase provisions are classified as liabilities in accordance with ASC 718. We have elected to measure all liability-classified awards utilizing the intrinsic value method and recognizes share-based compensation expense within advertising, general and administrative expenses in the consolidated statements of operations and comprehensive income.

 

Fair Value of Common Stock

 

The fair values of the shares of common stock underlying our liability classified awards, RSUs and PSUs were estimated on each grant date by our Board. In order to determine the fair value, our Board considered, among other things, valuations of our common stock in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately Held Company Equity Securities Issued as Compensation, or the “Practice Aid”. Given the absence of a public trading market of our common stock prior to March 2019, our Board exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock. Our Board used an income approach, weighted 80%, and a market approach, weighted 20%.

 

For the income approach, we performed a discounted cash flow analysis, which utilized projected cash flows as well as a residual value, which were discounted to the present value in order to arrive at an enterprise value. We relied on the following key assumptions for the income approach, in addition to management projections for the business:

 

a weighted average cost of capital (“WACC”), which served as the discount rate applied to forecasted future cash flows to calculate the present value of those cash flows; and

 

long-term growth rate assumption, which was used to calculate the residual value of Twin River before discounting to present value.

 

For the market approach, we utilized the guideline company method by analyzing a population of comparable companies and selected those companies considered to be the most comparable to us in terms of business description, size, growth, profitability, risk and return on investment, among other factors. We then used these guideline companies to develop relevant market multiples and ratios, which were applied to the corresponding latest twelve months and forward financials to estimate total enterprise value. We relied on the following key assumptions for the market approach:

 

our projected financial results determined as of the valuation date based on its best estimates; and

 

multiples of enterprise value to earnings before interest, taxes, depreciation and amortization (“EBITDA”), determined as of the valuation date, based on a group of comparable companies.

 

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Income Taxes

 

We prepare our income tax provision in accordance with ASC 740, Income Taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the rate change is enacted. A valuation allowance is required when it is “more likely than not” that all or a portion of the deferred taxes will not be realized. The consolidated financial statements reflect expected future tax consequences of uncertain tax positions presuming the taxing authorities’ full knowledge of the position and all relevant facts.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that begins in the reporting period that includes the TCJA’s enactment date and ends when an entity has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC 740, however in no circumstance should the measurement period extend beyond one year from the enactment date. In accordance with SAB 118, a company must reflect in its financial statements the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. SAB 118 provides that to the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.

 

We recorded the impact of enactment of U.S. tax reform subject to SAB 118, which provided for a twelve-month remeasurement period to complete the accounting required under Accounting Standards Codification ("ASC") 740, Income Taxes. During the fourth quarter of 2018, we completed our analysis to determine the deferred tax effect of the TCJA and recorded immaterial adjustments as of December 22, 2018.

 

Recently Issued Accounting Pronouncements

 

For a discussion of recently issued financial accounting standards, refer to Note 2, “Summary of Significant Accounting Policies”, "Item 8. Financial Statements and Supplementary Data" of this Annual Report for further detail.

 

JOBS Act Transition Period

 

In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

 

We will rely on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an emerging growth company, we will rely on certain of these exemptions, including without limitation, (1) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (2) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will be considered an emerging growth company until the earlier to occur of  (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of the Merger, (b) in which we have total annual gross revenues of at least $1.07 billion or (c) in which we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

 

ITEM 7A.   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. We are exposed to changes in interest rates primarily from variable rate long-term debt arrangements. As of December 31, 2018, interest on borrowings under our credit facility was subject to fluctuation based on changes in short-term interest rates. On December 31, 2018, we had $397.4 million of variable rate debt outstanding under our credit facility, consisting of $342.4 million principal amount outstanding under our term loan and $55.0 million in outstanding variable rate borrowings under our Revolving Credit Facility. Based upon a sensitivity analysis of our debt levels on December 31, 2018, an increase or decrease of 1% in the effective interest rate would cause an increase or decrease in interest expense of approximately $4.0 million over the next twelve months.

 

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We evaluate our exposure to market risk by monitoring interest rates in the marketplace and we have, on occasion, utilized derivative financial instruments to help manage this risk. We have not historically utilized derivative financial instruments for trading purposes. We do not believe that fluctuations in interest rates had a material effect on our business, financial condition or results of operations during the years ended December 31, 2018, 2017 or 2016.

 

Inflation generally affects us by increasing our cost of labor. Twin River does not believe that inflation had a material effect on our business, financial condition or results of operations during the years ended December 31, 2018, 2017 or 2016.

 

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The financial statements listed below are filed as part of this Annual Report.

 

INDEX TO FINANCIAL STATEMENTS

 

  Page No.
Report of Independent Registered Public Accounting Firm 44
   
Consolidated Balance Sheets at December 31, 2018 and 2017 45
   
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2018, 2017 and 2016 46
   
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2018, 2017 and 2016 47
   
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016 48
   
Notes to Consolidated Financial Statements 49

 

The accompanying audited consolidated financial statements of Twin River World Wide Holdings (and together with its subsidiaries, the "Company, or “Twin River”") have been prepared in accordance with the instructions to Form 10-K and Regulation S-X and include all information and footnote disclosures necessary for complete financial statements in conformity with accounting principles generally accepted in the United States ("GAAP").

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the shareholders and Board of Directors of

Twin River Worldwide Holdings, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Twin River Worldwide Holdings, Inc. (the "Company"), as of December 31, 2018 and 2017, and the related consolidated statements of operations and comprehensive income, statements of changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2018 and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Emphasis of Matter

 

As discussed in Note 1 and Note 12 to the financial statements, Dover Downs Gaming & Entertainment, Inc. (“Dover Downs”) merged with and into Double Acquisition Corp., an indirect wholly-owned subsidiary of the Company, on March 28, 2019. As a result, Dover Downs shareholders exchanged their stock for the Company’s common shares representing 7.225 percent of the equity in the combined company at closing.

 

/s/ DELOITTE & TOUCHE, LLP  

 

Parsippany, New Jersey

April 1, 2019

We have served as the Company's auditor since 2015.

 

 

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Twin River Worldwide Holdings, Inc.

 

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

 

   December 31, 
   2018   2017 
Assets          
Current assets:          
Cash and cash equivalents  $77,580   $85,814 
Restricted cash   3,851    7,402 
Accounts receivable, net   22,966    18,311 
Receivables from related parties   -    5,396 
Inventory   6,418    7,260 
Prepaid expenses and other assets   11,647    9,869 
Total current assets   122,462    134,052 
           
Property and equipment, net   416,148    335,548 
Goodwill   132,035    132,035 
Intangible assets, net   110,104    115,367 
Deferred financing fees, net   622    1,132 
Other assets   981    - 
Total assets  $782,352   $718,134 
           
Liabilities, Temporary Equity and Shareholders’ Equity          
Current liabilities:          
Current portion of term loan  $3,595   $33,325 
Accounts payable   14,215    25,062 
Accrued liabilities   57,778    57,849 
Total current liabilities   75,588    116,236 
           
Stock options   -    46,521 
Deferred tax liability   17,526    11,646 
Revolver borrowings   55,000    20,000 
Term loan, net of current portion, discount and deferred financing fees   335,578    337,875 
Total liabilities   483,692    532,278 
           
Commitments and contingencies          
Common stock, par value $0.01, at fair value at each period-end; 332,088 shares subject to possible redemption as of December 31, 2017.  There were no shares subject to possible redemption as of December 31, 2018.   -    9,053 
           
Shareholders’ equity:          
Common stock, par value $0.01; 100,000,000 shares authorized; 39,421,356 and 37,293,036 shares issued as of December 31, 2018 and 2017, respectively; 37,989,376 and 36,199,704 shares outstanding  as of December 31, 2018 and 2017, respectively, net of treasury stock.  Shares issued and outstanding as of December 31, 2017 exclude 332,088 shares subject to possible redemption.   380    362 
Additional paid in capital   125,629    67,910 
Treasury Stock, at cost, 1,431,980 and 1,093,332 shares as of December 31, 2018 and 2017, respectively   (30,233)   (22,275)
Retained earnings   202,884    130,806 
Total shareholders' equity   298,660    176,803 
Total liabilities, temporary equity and shareholders’ equity  $782,352   $718,134 

 

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

 

 

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Twin River Worldwide Holdings, Inc.

 

Consolidated Statements of Operations and Comprehensive Income

(In thousands, except share and per share amounts)

 

   Years Ended December 31, 
   2018   2017   2016 
             
Revenue:               
Gaming  $327,740   $314,794   $303,337 
Racing   13,158    14,034    15,685 
Hotel   21,339    19,431    19,614 
Food and beverage   48,380    47,004    51,964 
Other   26,920    25,790    24,217 
Net revenue   437,537    421,053    414,817 
                
Operating costs and expenses:               
Gaming   71,798    65,558    64,970 
Racing   9,031    9,534    10,925 
Hotel   8,266    7,173    7,093 
Food and beverage   40,246    37,371    40,555 
Advertising, general and administrative   156,023    155,336    148,093 
Expansion and pre-opening   2,678    154    623 
Referendum costs   -    -    5,032 
Newport Grand disposal loss   6,514    -    - 
Depreciation and amortization   22,332    22,204    25,070 
Total operating costs and expenses   316,888    297,330    302,361 
Income from operations   120,649    123,723    112,456 
                
Other income (expense):               
Interest income   173    194    180 
Interest expense, net of amounts capitalized   (23,025)   (22,809)   (26,583)
Change in fair value of contingent value rights   -    -    (2,661)
Total other expense   (22,852)   (22,615)   (29,064)
                
Income before provision for income taxes   97,797    101,108    83,392 
                
Provision for income taxes   (26,359)   (38,861)   (38,553)
Net income   71,438    62,247    44,839 
Deemed dividends related to changes in fair value of common stock subject to possible redemption   640    (2,344)   (1,028)
Net income applicable to common stockholders  $72,078   $59,903   $43,811 
                
Net income per share, basic  $1.95   $1.64   $1.17 
Weighted average common shares outstanding, basic   36,938,943    36,478,759    37,424,111 
                
Net income per share, diluted  $1.87   $1.56   $1.12 
Weighted average common shares outstanding, diluted   38,551,708    38,442,944    39,250,117 

 

Note: Net income equals comprehensive income for all the periods presented.

 

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

 

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Twin River Worldwide Holdings, Inc.

 

Consolidated Statements of Changes in Shareholders’ Equity

(In thousands, except share amounts)

 

   Common Stock   Additional   Treasury   Retained   Total Shareholders' 
   Shares   Amount   Paid-in Capital   Stock   Earnings   Equity 
Balance as of December 31, 2015   37,199,704   $372   $63,708   $-   $27,092   $91,172 
Stock option exercised   13,332    -    243    -    -    243 
Share-based compensation - equity awards   -    -    585    -    -    585 
Stock tender offer   (1,000,000)   (10)   10    (20,000)   -    (20,000)
Common stock subject to possible redemption   (13,332)   -    (243)        -    (243)
Deemed dividends related to changes in fair value of common stock subject to possible redemption   -    -    -         (1,028)   (1,028)
Net income   -    -    -    -    44,839    44,839 
Balance as of December 31, 2016   36,199,704    362    64,303    (20,000)   70,903    115,568 
Release of restricted units   16,968    -    -    -    -    - 
Common stock subject to possible redemption   (16,968)   -    (326)   -    -    (326)
Stock options exercised   54,976    1    1,387    -    -    1,388 
Stock options exercised via repayment of non-recourse notes   93,332    1    2,274    -    -    2,275 
Share-based compensation - equity awards   -    -    1,658    -    -    1,658 
Stock repurchases   (93,332)   (1)   1    (2,275)   -    (2,275)
Common stock subject to possible redemption   (54,976)   (1)   (1,387)   -    -    (1,388)
Deemed dividend related to changes in fair value of common stock subject to possible redemption   -    -    -    -    (2,344)   (2,344)
Net income   -    -    -    -    62,247    62,247 
Balance as of December 31, 2017   36,199,704    362    67,910    (22,275)   130,806    176,803 
Stock options exercised via repayment of non-recourse notes   1,771,096    18    44,739    -    -    44,757 
Share-based compensation - equity awards   -    -    1,692    -    -    1,692 
Release of restricted units   25,136    -    -    -    -    - 
Common stock subject to possible redemption   (25,136)   -    (685)   -    -    (685)
Stock repurchases   (338,648)   (3)   3    (7,958)   -    (7,958)
Common stock no longer subject to possible redemption due to extinguishment of Puts   357,224    3    9,095    -    -    9,098 
Fair value of vested stock options converted from liability to equity awards   -    -    2,875    -    -    2,875 
Deemed dividends related to changes in fair value of common stock subject to possible redemption   -    -    -    -    640    640 
Net income   -    -    -    -    71,438    71,438 
Balance as of December 31, 2018   37,989,376   $380   $125,629   $(30,233)  $202,884   $298,660 

 

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

 

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Twin River Worldwide Holdings, Inc.

 

Consolidated Statements of Cash Flows

(In thousands)

 

   Years Ended December 31, 
   2018   2017   2016 
Cash flows from operating activities:               
Net income  $71,438   $62,247   $44,839 
Adjustments to reconcile net income to net cash provided by operating activities:               
Depreciation of property and equipment   16,861    16,621    19,488 
Amortization of intangible assets   5,471    5,583    5,582 
Share-based compensation - liability awards   (3,166)   16,133    5,743 
Share-based compensation - equity awards   1,692    1,658    585 
Change in fair value of contingent value rights   -    -    2,661 
Amortization of deferred financing fees   2,400    2,205    2,440 
Amortization of original issue discount   867    1,082    1,171 
Bad debt expense   202    29    379 
Deferred income taxes   5,880    (5,126)   4,362 
Newport Grand disposal loss   6,514    -    - 
Loss on disposal of property and equipment   11    24    217 
Changes in operating assets and liabilities:               
Accounts receivable   (4,857)   (870)   (4,020)
Inventory   842    (461)   (621)
Prepaid expenses and other assets   (1,778)   4,547    (4,744)
Accounts payable   (4,078)   1,155    3,291 
Accrued liabilities   10,945    3,005    (10,681)
Net cash provided by operating activities   109,244    107,832    70,692 
                
Cash flows from investing activities:               
Deposit paid   (981)   -    - 
Loans to officers and directors   -    -    (2,155)
Repayment of loans from officers and directors   5,360    362    - 
Proceeds from sale of land and building for Newport Grand disposal   7,108    -    - 
Proceeds from sale of property and equipment   11    6    - 
Capital expenditures, excluding Tiverton Casino Hotel and new hotel at Twin River Casino   (11,874)   (8,574)   (9,753)
Capital expenditures - Tiverton Casino Hotel   (94,581)   (34,355)   (66)
Capital expenditures - new hotel at Twin River Casino   (22,435)   (4,924)   (203)
Payments associated with gaming license   (208)   -    - 
Net cash used in investing activities   (117,600)   (47,485)   (12,177)
                
Cash flows from financing activities:               
Revolver borrowing   41,000    10,000    45,000 
Revolver repayments   (6,000)   (25,000)   (10,000)
Term loan repayments   (34,527)   (11,564)   (36,842)
Payment of financing fees   (221)   (373)   (1,730)
Contingent value rights tender   -    -    (61,705)
Stock repurchases   (7,958)   (2,275)   (20,000)
Stock options exercised via repayment of non-recourse notes   4,277    280    - 
Stock options exercised   -    237    87 
Stock options put   -    (238)   (679)
Net cash used in financing activities   (3,429)   (28,933)   (85,869)
                
Net change in cash and cash equivalents and restricted cash   (11,785)   31,414    (27,354)
Cash and cash equivalents and restricted cash, beginning of period   93,216    61,802    89,156 
Cash and cash equivalents and restricted cash, end of period  $81,431   $93,216   $61,802 
                
Supplemental disclosure of cash flow information:               
Cash paid for interest  $23,178   $20,067   $22,920 
Cash paid for income taxes  $22,217   $41,029   $39,051 
                
Non-cash investing and financing activities:               
Unpaid property and equipment  $7,073   $24,858   $1,348 
Intrinsic value of stock options exercised via repayment of non-recourse note  $40,480   $1,995   $- 
Intrinsic value of stock options exercised with cash  $-   $1,151   $156 
Deemed dividends related to changes in fair value of common stock subject to possible redemption  $(640)  $2,344   $1,028 
Common stock no longer subject to possible redemption due to extinguishment of Puts  $9,098   $-   $- 
Fair value of vested stock options converted from liability to equity awards  $2,875   $-   $- 

 

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

 

 48 

 

 

Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

1.GENERAL INFORMATION

 

Description of Business

 

Twin River Worldwide Holdings, Inc. (the “Company”) was formed on March 1, 2004. Twin River Management Group, Inc. (“TRMG”), is a wholly-owned subsidiary of the Company and is the parent company of UTGR, Inc. (“Twin River Casino Hotel”), Premier Entertainment Biloxi LLC and subsidiaries (“Hard Rock Biloxi”), Premier Entertainment II, LLC (“Newport Grand”), Mile High USA, Inc. and subsidiaries (“Mile High USA”) and Twin River-Tiverton, LLC (“Tiverton Casino Hotel”), all of which are wholly-owned subsidiaries of TRMG.

 

Twin River Casino Hotel is located in Lincoln, Rhode Island and is authorized to house a maximum of 4,752 Video Lottery Terminals (“VLTs”) and traditional casino table games on behalf of the State of Rhode Island. Twin River Casino Hotel is entitled to a blended 27.8% share of VLT revenue when the maximum number of VLTs are in operation and is entitled to an 83.5% share of revenue from table games as of December 31, 2018. As of December 31, 2018, the property houses approximately 4,200 VLTs, and is entitled to a 28.0% share of VLT revenue on those machines and offers approximately 100 traditional table games, 25 poker tables and 50 stadium gaming positions in addition to simulcast racing, various food and beverage venues and a multi-purpose event center. The Twin River Casino Hotel has a 136-room hotel.

 

Hard Rock Biloxi’s operations consist of a casino and hotel located in Biloxi, Mississippi. As of December 31, 2018, the property includes approximately 1,200 slot machines, 50 table games and two hotel towers containing 479 guest rooms and suites, a pool with swim up bar and a spa. The property also features a variety of restaurants and nightlife options.

 

On April 19, 2015, TRMG formed Premier Entertainment II, LLC and on July 14, 2015, Premier Entertainment II LLC acquired substantially all of the assets of Newport Grand Casino located in Newport, Rhode Island. Newport Grand housed approximately 1,100 VLTs on behalf of the State of Rhode Island and also offered simulcast wagering as well as a restaurant and bar. Until Newport Grand closed on August 28, 2018, Newport Grand was entitled to a 28.0% share of VLT revenue. The Company has included the results of Newport Grand in its consolidated financial statements from the date of acquisition until the date Newport Grand vacated the building after closing. See Note 3 “Sale of Newport Grand”.

 

On February 3, 2015, TRMG formed Border Investments LLC for the purpose of acquiring the rights to land located in Tiverton, Rhode Island and subsequently proposed a relocation of the existing Newport Grand gaming license to a new casino to be developed in that town. On November 9, 2015, TRMG formed Twin River-Tiverton, LLC to develop and house the new casino. The Tiverton casino was approved by a majority vote in both the State of Rhode Island and the Town of Tiverton on November 8, 2016. During 2017, the land acquired by Border Investments LLC was transferred to Twin River-Tiverton, LLC and Border Investments LLC was dissolved. On September 1, 2018, the casino and hotel located in Tiverton, Rhode Island (“Tiverton Casino Hotel”) began operations. As of December 31, 2018, the property houses approximately 1,000 VLTs, 35 table games and 20 stadium gaming positions on behalf of the State of Rhode Island. Tiverton Casino Hotel is entitled to a 28.0% share of VLT revenue and an 83.5% share of revenue from table games as of December 31, 2018. The Tiverton Casino Hotel has an 83-room hotel.

 

Mile High USA’s operations consist of a horse racing track and simulcast wagering at Arapahoe Park Racetrack in Aurora, Colorado, as well as simulcast horse and dog wagering at up to 13 licensed off-track betting (“OTB”) sites in Colorado.

 

The Company has two reportable segments which are operated and managed as follows: 1) Rhode Island and 2) Biloxi. See Note 15 “Segment Reporting”.

 

On March 28, 2019, the Company acquired Dover Downs Gaming & Entertainment, Inc. (“Dover Downs”). In the transaction, each share of Dover Downs common stock and class A common stock was converted into the right to receive 0.0899 shares of the Company’s common stock with cash in lieu of fractional shares. Dover Downs common stock, which previously traded under the ticker symbol “DDE” on the New York Stock Exchange (the “NYSE”), ceased trading on, and was delisted from, the NYSE on March 28, 2019. On March 29, 2019, the Company’s common stock was listed on the NYSE and began trading under the ticker symbol “TRWH.”

 

Stock Dividend

 

On January 18, 2019, the Board of Directors approved the Company’s common stock dividend, accounted for as a stock split. The stock split was effected through a stock dividend of three shares for each share outstanding. The effect of this dividend was to increase common stock outstanding as of December 31, 2018 and 2017, from 9,855,339 and 9,323,259 to 39,421,356 and 37,293,036, respectively. All share and per share information included in the consolidated financial statements have been retroactively adjusted to reflect the impact of the stock dividend. The shares of common stock authorized remained at 100 million, and the shares retained a par value of $0.01.

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The accompanying consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiary TRMG and its subsidiaries. All significant intercompany transactions and balances have been eliminated in the consolidation.

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates and judgments including those related to contingent value rights, the allowance for doubtful accounts, valuation of goodwill and intangible assets, recoverability and useful lives of tangible and intangible long-lived assets, accruals for players club card incentives and for potential liabilities related to any lawsuits or claims brought against the Company, fair value of financial instruments, stock compensation and valuation allowances for deferred tax assets. The Company bases its estimates and judgments on historical experience and other relevant factors impacting the carrying value of assets and liabilities. Actual results may differ from these estimates.

 

Cash and Cash Equivalents and Restricted Cash

 

The Company considers all cash balances and highly liquid investments with an original maturity of three months or less to be cash equivalents.

 

As of December 31, 2018 and 2017, restricted cash of $3.9 million and $7.4 million, respectively, was comprised of VLT and table games cash payable to the State of Rhode Island which is unavailable for the Company’s use. The following table reconciles cash and restricted cash in the consolidated balance sheets to the total shown on the consolidated statements of cash flows.

 

   December 31, 
   2018   2017   2016 
Cash and cash equivalents  $77,580   $85,814   $55,360 
Restricted cash   3,851    7,402    6,442 
Total cash and cash equivalents and restricted cash  $81,431   $93,216   $61,802 

 

Concentrations of Credit Risk

 

The Company’s financial instruments which potentially expose the Company to concentrations of credit risk consisted of cash and cash equivalents and trade receivables. The Company maintains cash with financial institutions in excess of federally insured limits, however, management believes the credit risk is mitigated by the quality of the institutions holding such deposits.

 

Accounts receivable are primarily comprised of receivables from the State of Rhode Island for Twin River Casino Hotel’s and Newport Grand’s share of VLT and table games revenue, receivables from tracks and OTB locations that air simulcast races, and casino and hotel receivables. As of December 31, 2018 and 2017, receivables from the State of Rhode Island comprised approximately 60% and 68% of the accounts receivable balance, respectively.

 

For the years ended December 31, 2018, 2017 and 2016, gaming revenue from the State of Rhode Island accounted for 56%, 56% and 55% of net revenues, respectively. Based on the Master Video Lottery Terminal Contract (the “Contract”) with the State of Rhode Island and historical experience, the Company’s management believes any credit risk to be minimal.

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

Accounts are written off when management determines that an account is uncollectible. Recoveries of accounts previously written off are recorded when received. An allowance for doubtful accounts is determined to reduce the Company’s receivables to their carrying value, which approximates fair value. The allowance is estimated based on historical collection experience, specific review of individual customer accounts, and current economic and business conditions. Historically, the Company has not incurred any significant credit-related losses. The allowance was $1.0 million and $0.8 million as of December 31, 2018 and 2017, respectively.

 

Inventory

 

Inventory is stated at the lower of cost or net realizable value on a first-in, first-out basis and consists primarily of food, beverage, promotional items and other supplies.

 

Property and Equipment

 

The Company applied “fresh start accounting” upon emergence from Chapter 11 reorganization, in accordance with the guidance of Accounting Standards Codification (“ASC”) 805, Business Combinations and ASC 852, Reorganizations. As a result of “fresh start accounting”, the Company adjusted property and equipment to reflect its fair value on November 5, 2010 (the “Emergence Date”). Additions subsequent to that date have been recorded at cost.

 

Property and equipment obtained in connection with acquisitions is valued at its estimated fair value as of the date of acquisition. Additions subsequent to the acquisition date are recorded at cost.

 

Property and equipment are depreciated over the estimated useful lives of the assets using the straight-line method. Expenditures for renewals and betterments that extend the life or value of an asset are capitalized; expenditures for repairs and maintenance are charged to expense as incurred. The costs and related accumulated depreciation applicable to assets sold or disposed are removed from the balance sheet accounts and the resulting gains or losses are reflected in the consolidated statements of operations and comprehensive income.

 

Development costs directly associated with the acquisition, development and construction of a project are capitalized as a cost of the project during the periods in which activities necessary to prepare the property for its intended use are in progress. Interest costs associated with major construction projects are capitalized as part of the cost of the constructed assets. When no debt is incurred specifically for a project, interest is capitalized on amounts expended for the project using the weighted-average cost of borrowing. Capitalization of interest ceases when the project (or discernible portions of the project) is substantially complete. If substantially all of the construction activities of a project are suspended, capitalization of interest will cease until such activities are resumed. During the years ended December 31, 2018 and 2017, capitalized interest was $3.4 million and $0.6 million, respectively.

 

As of December 31, 2018 and 2017, property and equipment was comprised of the following:

 

  

Estimated

Useful Life

  December 31, 
   (in years)  2018   2017 
Land     $31,437   $34,260 
Land improvements  2-40   23,305    9,129 
Building and improvements  7-40   364,561    241,250 
Equipment  2-14   87,503    72,319 
Furniture and fixtures  2-7   18,715    12,074 
Construction in process      1,632    64,717 
Total property, plant and equipment      527,153    433,749 
Less: Accumulated depreciation      (111,005)   (98,201)
Property and equipment, net     $416,148   $335,548 

 

Construction in process relates to costs capitalized in conjunction with major improvements that have not yet been placed in service, and accordingly are not currently being depreciated. The construction in process balance at December 31, 2017 included costs associated with the development of a new casino in Tiverton that opened on September 1, 2018 and a hotel at Twin River Casino Hotel which opened in October 2018.

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

Depreciation expense relating to property and equipment was $16.9 million, $16.6 million and $19.5 million for the years ended December 31, 2018, 2017 and 2016 respectively.

 

Goodwill

 

Goodwill represents the excess of reorganization value over the fair market value of Twin River Casino Hotel net assets on the Emergence Date and the excess of the Hard Rock Biloxi and Newport Grand purchase prices over the respective fair values of tangible and identifiable assets acquired and liabilities assumed. Goodwill is not amortized but is reviewed for impairment annually in October, or when events or changes in the business environment indicate that the carrying value of the reporting unit may exceed its fair value, by comparing the fair value of each reporting unit to its carrying value, including goodwill.

 

When assessing goodwill for impairment, first, qualitative factors are assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. The quantitative goodwill test compares the estimated fair value of each reporting unit with its estimated net book value (including goodwill and identifiable intangible assets). If the reporting unit’s estimated fair value exceeds its estimated net book value, goodwill is not impaired. Prior to the adoption of Accounting Standards Update (“ASU”) 2017-04, Intangibles — Goodwill and Other (Topic 350) — Simplifying the Test for Goodwill Impairment for the Company’s 2017 goodwill impairment test, if a reporting unit’s estimated fair value did not exceed its carrying value, an impairment was recognized if the implied fair value of goodwill was less than its carrying value. After the adoption of this new standard, an impairment is recognized if the estimated fair value of a reporting unit is less than its estimated net book value, in an amount not to exceed the carrying value of the reporting unit’s goodwill.

 

As of October 1, 2018 and 2017, the Company assessed goodwill for impairment for each of its reporting units. The Company performed a qualitative analysis for the annual assessment of goodwill (commonly referred to as “Step Zero”) for the Rhode Island reporting unit as of October 1, 2018 and 2017. From a qualitative perspective, in evaluating whether it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, relevant events and circumstances are taken into account, with greater weight assigned to events and circumstances that most affect the fair value or the carrying amounts of its assets. Items that were considered included, but were not limited to, the following: macroeconomic conditions, industry and market conditions and overall financial performance. After assessing these and other factors the Company determined that it was more likely than not that the fair value of the Rhode Island reporting unit exceeded its carrying amount as of October 1, 2018 and 2017. If future results significantly vary from current estimates and related projections, the Company may be required to record impairment charges.

 

The Company performed a quantitative test of goodwill for the Biloxi reporting unit as of October 1, 2018 and 2017. The Company estimates the fair value of its reporting units using both income and market-based approaches. Specifically, the Company applies the Discounted Cash Flow (“DCF”) Method under the Income Approach and the Guideline Company and Comparable Transaction Methods under the Market Approach and weights the results of the three valuation methodologies based on the facts and circumstances surrounding the Reporting Unit. For the DCF Method, the Company relies on the present value of expected future cash flows, including terminal value, utilizing a market-based weighted average cost of capital (“WACC”) determined separately for the reporting unit as of each valuation date. The determination of fair value under the DCF Method involves the use of significant estimates and assumptions, including revenue growth rates driven by future gaming activity, hotel bookings and food and beverage expectations, operating margins, capital expenditures, working capital requirements, tax rates, terminal growth rates, discount rates and synergistic benefits available to market participants. For the Market Approaches, the Company utilizes a comparison of the reporting unit to comparable publicly-traded companies and transactions and, based on the observed multiples for both of these methodologies, ultimately selects multiples to apply to the reporting unit. After assessing these and other factors utilized in the various valuation methodologies described above, the Company determined that the fair value of the Biloxi reporting unit exceeded its carrying amount as of October 1, 2018 and 2017 and thus there was not impairment. If future results significantly vary from current estimates and related projections, the Company may be required to record impairment charges.

 

Intangible Assets

 

As a result of “fresh start accounting”, the Company adjusted Twin River Casino Hotel intangible assets to reflect their fair values on the Emergence Date. Intangible assets consist of a Rhode Island VLT license, the Contract with the Division of Lotteries for the State of Rhode Island and the State of Rhode Island Department of Transportation, as amended, the Twin River trade name and the Twin River Casino Hotel rated player relationships. The Rhode Island VLT license has an indefinite life and therefore is not being amortized. The Contract for the VLTs, the Twin River Casino Hotel rated player relationships and the Twin River trade name are being amortized using the straight-line method based on their estimated useful lives from the Emergence Date.

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

Intangible assets identified in connection with the Hard Rock Biloxi acquisition include a license agreement with Hard Rock Hotel Licensing, Inc., rated player relationships, pre-bookings and origination costs and leases in place which are amortized over their estimated useful lives using the straight-line method.

 

Intangible assets identified in connection with the Newport Grand acquisition include a Rhode Island VLT license, rated player relationships and the Newport Grand trade name. The Rhode Island VLT license has an indefinite life and therefore is not being amortized. The Newport Grand rated player relationships and trade name are being amortized over their estimated useful lives using the straight-line method. Intangible assets for Newport Grand were immaterial when Newport Grand closed on August 28, 2018.

 

The Company periodically evaluates the remaining useful lives of its finite-lived intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization.

 

Intangible assets not subject to amortization are reviewed for impairment annually as of October 1 and between annual test dates whenever events or changes in circumstances may indicate that the carrying amount of the related asset may not be recoverable. The Company determined that its indefinite-lived assets were not impaired as of December 31, 2018 and 2017. If management’s estimates of revenues and costs change, it is possible that the Company may incur an impairment loss in the future.

 

Long-lived Assets

 

The Company reviews its long-lived assets, other than goodwill and intangible assets not subject to amortization, for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an asset is still under development, the analysis includes the remaining construction costs. Cash flows expected to be generated by the related assets are estimated over the assets' useful lives based on updated projections. If the evaluation indicates that the carrying amount of an asset may not be recoverable, the potential impairment is measured based on a fair value discounted cash flow model.

Debt Issuance Costs and Debt Discounts

 

Debt issuance costs and debt discounts incurred by the Company in connection with obtaining and amending financing have been included as a component of the carrying amount of debt, with the exception of revolving credit facility debt issuance costs, which are included in deferred financing fees, net in the consolidated balance sheets.

 

Debt issuance costs and debt discounts are amortized over the contractual term of the debt to interest expense. Debt issuance costs of the revolving credit facility are amortized on a straight-line basis, while all other debt issuance costs and debt discounts are amortized using the effective interest method. Amortization of debt issuance costs and debt discounts included in interest expense was $3.2 million, $3.3 million and $3.6 million for the years ended December 31, 2018, 2017 and 2016, respectively.

 

Self-Insurance Reserves

 

The Company is self-insured for employee medical insurance coverage up to an individual stop loss of $100,000 in both 2018 and 2017, and $150,000 in 2016. Self-insurance liabilities are estimated based on the Company’s claims experience using actuarial methods to estimate the future cost of claims and related expenses that have been reported but not settled, and that have been incurred but not yet reported. The self-insurance liabilities are included in accrued liabilities in the consolidated balance sheets. Such amounts were $1.0 million as of both December 31, 2018 and 2017.

 

Share-Based Compensation

 

The Company records share-based compensation in accordance with ASC 718, Compensation — Stock Compensation, and recognizes share-based compensation expense in the period in which the employee or director is required to provide service, which is generally over the vesting period of the individual share-based payment award. The Company has two share-based employee compensation plans, which are described more fully in Note 8, "Equity Plans". Share-based compensation consists of stock options, restricted stock units and performance stock units.

 

 53 

 

 

Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

Compensation expense for awards with graded vesting is recognized over the requisite service period on an accelerated basis, as if each tranche were a separate award. Members of senior management of the Company have been granted performance units which vest, when and if earned, in accordance with the terms of the related performance unit award agreements. Compensation expense for awards with performance conditions is based on the target number of shares of common stock and the Company’s stock price on the date of grant and subsequently adjusts expense based on actual and forecasted performance compared to planned targets. Compensation cost previously recognized on forfeited awards is reversed when the forfeitures occur.

 

The Company classifies stock awards as either an equity award or a liability award depending on whether the award contains certain repurchase provisions. Equity classified awards are valued as of the grant date using either an observable market price or a valuation methodology. Liability classified awards are valued at fair value at each reporting date. See Note 8 “Equity Plans”.

 

Share-based payment awards which contain certain repurchase provisions are classified as liabilities in accordance with ASC 718. The Company has elected to measure all liability-classified awards utilizing the intrinsic value method and recognizes share-based compensation expense within advertising, general and administrative expenses in the consolidated statements of operations and comprehensive income.

 

Redeemable Securities

 

The Company accounts for redeemable common stock in accordance with ASC 480-10-S99-3A, “Classification and Measurement of Redeemable Securities,” which requires classification outside of permanent equity in temporary equity for securities that are redeemable at the holder’s option for cash or other assets.

 

Revenue Recognition

 

The Company accounts for revenue earned from contracts with customers under ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The Company generates revenue from five principal sources: gaming services, hotel, racing, food and beverage and other.

 

Gaming revenue includes Twin River Casino Hotel’s, Tiverton Casino Hotel’s (upon its opening on September 1, 2018) and Newport Grand’s (until its closing on August 28, 2018) share of VLT revenue as determined by their respective master VLT contracts with the State of Rhode Island. Twin River Casino Hotel is entitled to a 28.85% share of VLT revenue on the initial 3,002 units and a 26.00% share on VLT revenue generated from units in excess of 3,002. Tiverton Casino Hotel is and Newport Grand was entitled to receive a percentage of VLT revenue that is equivalent to the percentage received by Twin River Casino Hotel. Gaming revenue also includes Twin River Casino Hotel’s and Tiverton Casino Hotel’s share of table games revenue whereby Twin River Casino Hotel and Tiverton Casino Hotel are entitled to an 83.5% share of table games revenue generated as of December 31, 2018. Revenue is recognized when the wager is complete, which is when the customer has received the benefits of the Company’s gaming services and the Company has a present right to payment. The Company records revenue on a net basis which is the percentage share of VLT revenue received as the Company acts as an agent in operating the gaming service on behalf of the State of Rhode Island.

 

Gaming revenue also includes Hard Rock Biloxi’s casino revenue, which is the aggregate net difference between gaming wins and losses, with liabilities recognized for funds deposited by customers before gaming play occurs, for chips outstanding and “ticket-in, ticket-out” coupons in the customers’ possession, and for accruals related to the anticipated payout of progressive jackpots. Progressive slot machines, which contain base jackpots that increase at a progressive rate based on the number of credits played, are charged to revenue as the amount of the progressive jackpots increase.

 

Gaming services contracts have two performance obligations for those customers earning incentives under the Company’s player loyalty programs and a single performance obligation for customers who do not participate in the programs. 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 consolidated financial statements of applying the revenue recognition guidance to the portfolio do not differ materially from that which would result if applying the guidance to an individual wagering contract. For purposes of allocating the transaction price in a wagering contract between the wagering performance obligation and the obligation associated with incentives earned under loyalty programs, the Company allocates an amount to the loyalty program contract liability based on the stand-alone selling price of the incentives earned for a hotel room stay, food and beverage or other amenities. The performance obligations for the incentives earned under the loyalty programs are deferred and recognized as revenue when the customer redeems the incentive. When redeemed, revenue is recognized in the department that provides the goods or service. After allocating revenue to other goods and services provided as part of casino wager contracts, the Company records the residual amount to gaming revenue 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.

 

 54 

 

 

Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

The estimated retail value related to goods and services provided to guests without charge or upon redemption under the Company’s player loyalty programs included in departmental revenues, and therefore reducing gaming revenues, are as follows for the years ended December 31, 2018, 2017 and 2016:

 

   Years Ended December 31, 
   2018   2017   2016 
Hotel  $11,697   $11,347   $12,084 
Food and beverage   23,051    23,674    27,861 
Other   5,772    5,927    6,029 
   $40,520   $40,948   $45,974 

 

Racing revenue includes Twin River Casino Hotel’s, Tiverton Casino Hotel’s (upon its opening on September 1, 2018), Newport Grand’s (until its closing on August 28, 2018) and Mile High USA’s share of wagering from live racing and the import of simulcast signals. Racing revenue is recognized when the wager is complete based on an established take-out percentage. The Company functions as an agent to the pari-mutuel pool. Therefore, fees and obligations related to the Company’s share of purse funding, simulcasting fees, tote fees, pari-mutuel taxes, and other fees directly related to the Company’s racing operations are reported on a net basis and included as a deduction to racing revenue.

 

Hotel revenue is recognized at the time of occupancy, which is when the customer obtains control through occupancy of the room. Advance deposits for hotel rooms are recorded as liabilities until revenue recognition criteria are met.

 

Food and beverage revenue are recognized at the time the goods are sold from Company-operated outlets.

 

All other revenues are recognized at the time the goods are sold or the service is provided.

 

Sales tax and other taxes collected on behalf of governmental authorities are accounted for on a net basis and are not included in net revenue or operating expenses.

 

The following table provides a disaggregation of net revenue by segment:

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

   Rhode             
Years Ended December 31,  Island   Biloxi   Other   Total 
2018                    
Gaming  $246,126   $81,614   $-   $327,740 
Racing   3,796    -    9,362    13,158 
Hotel   1,361    19,978    -    21,339 
Food and beverage   29,922    18,342    116    48,380 
Other   21,447    5,203    270    26,920 
Net revenue  $302,652   $125,137   $9,748   $437,537 
                     
2017                    
Gaming  $235,224   $79,570   $-   $314,794 
Racing   3,902    -    10,132    14,034 
Hotel   -    19,431    -    19,431 
Food and beverage   28,447    18,440    117    47,004 
Other   20,286    5,253    251    25,790 
Net revenue  $287,859   $122,694   $10,500   $421,053 
                     
2016                    
Gaming  $226,728   $76,609   $-   $303,337 
Racing   3,984    -    11,701    15,685 
Hotel   -    19,614    -    19,614 
Food and beverage   30,218    21,647    99    51,964 
Other   18,783    5,207    227    24,217 
Net revenue  $279,713   $123,077   $12,027   $414,817 

 

The Company’s receivables related to contracts with customers are primarily comprised of marker balances and other amounts due from gaming activities, amounts due for hotel stays, and amounts due from tracks and OTB locations. The Company’s receivables related to contracts with customers are $13.3 million and $12.1 million as of December 31, 2018 and 2017, respectively. The Company has the following liabilities related to contracts with customers: liabilities for loyalty programs, deposits made in advance for goods and services yet to be provided, and unpaid wagers. All of the contract liabilities are short term in nature. Loyalty program incentives earned by customers are typically redeemed within one year from when they are earned and expire if a customer’s account is inactive for more than twelve months; therefore, the majority outstanding at the end of a period will either be redeemed or expire within the next year. The Company’s contract liabilities related to loyalty programs were $9.5 million, and $9.0 million as of December 31, 2018 and 2017, respectively, and are included as accrued liabilities in the consolidated balance sheets. The Company recognized $8.2 million, $8.0 million and $8.3 million of revenue related to loyalty program redemptions for the years ended December 31, 2018, 2017 and 2016, respectively.

 

Advance deposits are typically for future banquet events and to reserve hotel rooms. These deposits are usually received weeks or months in advance of the event or hotel stay. The Company’s contract liabilities related to deposits from customers were $0.6 million as of both December 31, 2018 and 2017 and are included as accrued liabilities in the consolidated balance sheets.

 

Unpaid wagers include unpaid pari-mutuel tickets and unpaid sports bet tickets. Unpaid pari-mutuel tickets not claimed within twelve months by the customer who earned them are escheated to the state. The Company’s contract liabilities related to unpaid tickets were $0.9 million and $0.7 million as of December 31, 2018 and 2017, respectively, and are included as accrued liabilities in the consolidated balance sheets.

 

Topic 606 requires complimentary items to be considered a separate performance obligation, which requires the Company to allocate a portion of revenue from a gaming transaction to other operating revenue based on the estimated standalone selling prices of the promotional items provided. For example, when a casino customer is given a complimentary room, the Company is required to allocate a portion of the casino revenue earned from the customer to hotel revenue based on the estimated standalone selling price of the hotel room. The estimated standalone selling price of hotel rooms is determined based on observable prices. The standalone selling price of food and beverage, and other miscellaneous goods and services is determined based upon the actual retail prices charged customers for those items. Revenue is recognized in the period the goods or services are provided.

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

Gaming Expenses

 

Gaming expenses include, among other things, payroll costs and expenses associated with the operation of VLTs, slots and table games, including the win tax paid to the Mississippi Gaming Commission.

 

Racing Expenses

 

Racing expenses include payroll costs, OTB commissions and other expenses associated with the operation of live racing and simulcasting.

 

Advertising Expense

 

The Company expenses advertising costs as incurred. For the years ended December 31, 2018, 2017 and 2016, advertising expense was $5.9 million, $5.8 million and $5.7 million, respectively.

 

Referendum Costs

 

Referendum costs are expensed as incurred. There were no referendum costs incurred for the years ended December 31, 2018 or 2017. For the year ended December 31, 2016, these costs consisted of contributions made to support the termination of the existing Newport Grand Casino gaming license and the issuance of new gaming license to a new casino to be developed in Tiverton. See Note 3 “Sale of Newport Grand”.

 

Expansion and Pre-opening Expenses

 

Expansion and pre-opening expenses are charged to expense as incurred. The Company defines pre-opening expenses as costs incurred before the property commences commercial operations and defines expansion expenses as costs incurred in connection with the opening of a new facility or significant expansion of an existing property. Costs classified as expansion and pre-opening costs consist primarily of marketing, master planning, conceptual design fees and legal and professional fees that are not eligible for capitalization incurred in connection with the Tiverton Casino Hotel and the new hotel at Twin River Casino Hotel. Expansion and pre-opening costs for the years ended December 31, 2018, 2017 and 2016 were $2.7 million, $0.2 million and $0.6 million, respectively.

 

Interest Expense

 

Interest expense is comprised of interest costs for the Company’s debt, amortization of deferred financing fees and original issue discount, net of amounts capitalized for construction projects. Interest expense recorded in the consolidated statements of operations and comprehensive income totaled $23.0 million, $22.8 million and $26.6 million for the years ended December 31, 2018, 2017 and 2016, respectively.

 

Income Taxes

 

The Company prepares its income tax provision in accordance with ASC 740, Income Taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the rate change is enacted. A valuation allowance is required when it is “more likely than not” that all or a portion of the deferred taxes will not be realized. The consolidated financial statements reflect expected future tax consequences of uncertain tax positions presuming the taxing authorities’ full knowledge of the position and all relevant facts.

Earnings Per Share

 

Basic earnings per common share (EPS) is calculated by dividing net income applicable to common shareholders by the weighted average number of common shares outstanding and RSUs and PSUs for which no future service is required as a condition to the delivery of the underlying common stock (collectively, basic shares). Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive effect of the common stock deliverable for stock options, using the treasury stock method, and for RSUs and PSUs for which future service is required as a condition to the delivery of the underlying common stock. The table below presents the computations of basic and diluted EPS:

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

   Years Ended December 31, 
   2018   2017   2016 
Net income applicable to common stockholders  $72,078   $59,903   $43,811 
                
Weighted average shares outstanding, basic   36,938,943    36,478,759    37,424,111 
Weighted average effect of dilutive securities   1,612,765    1,964,185    1,826,006 
Weighted average shares outstanding, diluted   38,551,708    38,442,944    39,250,117 
                
Per share data               
Basic  $1.95   $1.64   $1.17 
Diluted  $1.87   $1.56   $1.12 

 

For the years ended December 31, 2018 and 2017, there were no share-based awards that were considered anti-dilutive.

 

Treasury Stock

 

The Company records the repurchase of shares of common stock at cost based on the settlement date of the transaction. These shares are classified as treasury stock, which is a reduction to stockholders’ equity. Treasury stock is included in authorized and issued shares but excluded from outstanding shares. The Company repurchased 338,648, 93,332, and 1,000,000 shares of its common stock at an aggregate annual cost of $7.6 million, $2.3 million and $20.0 million in the years ended December 31, 2018, 2017 and 2016, respectively.

 

Business Combinations

 

The Company accounts for its acquisitions in accordance with ASC 805, “Business Combinations.” The results of operations of acquisitions are included in the consolidated financial statements from their respective dates of acquisition. Costs incurred to complete the business combination such as investment banking, legal and other professional fees are not considered part of consideration and are charged to acquisition expense as they are incurred.

 

Segments

 

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. Certain operating segments are aggregated into reportable segments. See Note 15 “Segment Reporting”.

 

Statement of Cash Flows

 

The Company has presented the consolidated statements of cash flows using the indirect method, which involves the reconciliation of net income to net cash flow from operating activities.

 

Fair Value Measurements

 

Fair value is determined using the principles of ASC 820, Fair Value Measurement. Fair value is described as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes and defines the inputs to valuation techniques as follows:

 

·Level 1: Observable quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

·Level 2: Inputs are observable for the asset or liability either directly or through corroboration with observable market data.

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

·Level 3: Unobservable inputs.

 

The Company’s only financial instruments carried at fair value with changes in fair value flowing through current earnings consist of contingent value rights recorded in conjunction with the Company’s emergence from Chapter 11 reorganization in November 2010. The CVRs expired in November 2017. The fair value of the Company’s CVRs have been classified within Level 3 in the fair value hierarchy. The CVRs were revalued to fair value each period and any increase or decrease is recorded in other income (expense). See Note 14 “Commitments and Contingencies”.

 

The Company’s cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities are carried at cost, which approximates fair value due to the short-term nature of these instruments. The carrying value of the Company’s term loans and revolving credit facilities, including the current portion, approximate fair value as the terms and conditions of these loans are consistent with comparable market debt issuances. These measurements fall with Level 3 of the fair value hierarchy.

 

The inputs used to measure the fair value of an asset or a liability are categorized within levels of the fair value hierarchy. The fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the measurement. There were no transfers made among the three levels in the fair value hierarchy for the years ended December 31, 2018 and 2017.

 

Recently Issued Accounting Pronouncements

 

Standards implemented

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”), amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The core principle of Topic 606 is that revenue should be recognized 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. Additional ASUs have been issued that are part of the overall new revenue guidance including: (i) ASU 2016-08, “ Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ,” (ii) ASU 2016-10, “ Identifying Performance Obligations and Licensing ,” (iii) ASU 2016-20, “ Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers ” and (iv) ASU 2016-12, “ Narrow Scope Improvements and Practical Expedients ,” which clarified guidance on certain items such as reporting revenue as a principal or agent, identifying performance obligations, accounting for fixed odds wagering contracts associated with the Company’s racing operations, accounting for intellectual property licenses and accessing collectability and presentation of sales tax. The Company adopted Topic 606 on January 1, 2018 using the full retrospective method.

 

Topic 606 changed the presentation of net revenue and operating expenses. Prior to the adoption of Topic 606, the retail value of complimentary hotel rooms, food, beverages and other services provided to the Company’s customers was included in gross revenue, with an offsetting reduction for promotional allowances to derive net revenues. The estimated direct cost of providing these items was charged to the casino through interdepartmental allocations and included in gaming expenses. Under the new guidance, revenues are allocated among our revenue classifications based on the relative standalone selling prices of the goods and services provided to the customer after factoring in the likelihood of redemption of incentives. The accounting for the Company’s loyalty programs was also impacted, with changes to the timing and/or classification of certain transactions between net revenue and operating expenses.

 

The cumulative effect of these adjustments was to decrease beginning retained earnings as of January 1, 2016 by $2.0 million (after tax), decrease deferred tax liabilities by $1.2 million and increase accrued liabilities by $3.2 million in the consolidated balance sheets. The effects of the adoption of Topic 606 on the consolidated statements of operations and comprehensive income the year ended December 31, 2017 and 2016 are as follows:

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

   Years Ended December 31, 
   2017   2016 
   Increase/(decrease) 
Revenue:          
Gaming  $(45,850)  $(50,601)
Racing   (3,461)   (3,718)
Hotel   (229)   (228)
Food and beverage   (1,594)   (1,532)
Other   598    567 
Gross revenue   (50,536)   (55,512)
Less: Promotional allowances   42,790    47,756 
Net revenue   (7,746)   (7,756)
           
Operating costs and expenses:          
Gaming   (26,824)   (30,040)
Racing   (3,461)   (3,718)
Hotel   4,278    4,466 
Food and beverage   19,437    22,357 
Advertising, general and administrative   (1,176)   (821)
Expansion and pre-opening   -    - 
Referendum costs   -    - 
Newport Grand disposal loss   -    - 
Depreciation and amortization   -    - 
Total operating costs and expenses   (7,746)   (7,756)
Income from operations  $-   $- 

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350) — Simplifying the Test for Goodwill Impairment. This standard simplifies the quantitative goodwill impairment test by eliminating the second step of the test. Under this standard, impairment will be measured by comparing the estimated fair value of the reporting unit with its carrying value. The Company early adopted this standard in conjunction with its 2017 goodwill impairment test. Adoption of this standard did not have a material impact on the results of the Company’s goodwill impairment test.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation — Stock Compensation (Topic 718) — Improvements to Employee Share-Based Payment, aimed at simplifying the accounting for share-based transactions. The standard included modifications to the accounting for income taxes upon vesting or settlement of equity awards, employer tax withholding on share-based compensation and financial statement presentation of excess tax benefits. The standard also provides an alternative on incorporating forfeitures in share-based compensation. The Company adopted the standard effective January 1, 2017; adoption did not have a material impact on the Company’s consolidated financial statements.

 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows — Restricted Cash. The amendments in this update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this standard effective January 1, 2018 by retrospective restatement of all prior period consolidated statements of cash flows.

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330). This standard update simplified the subsequent measurement of inventory, excluding inventory accounted for under the last-in, first-out or the retail inventory methods. The update replaced the current lower of cost or market test with a lower of cost and net realizable value test. Under the prior guidance, market could be replacement cost, net realizable value or net realizable value less an approximately normal profit margin. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The adoption of ASU 2015-11 was applied prospectively and as of January 1, 2017 did not have an impact on the Company’s consolidated financial statements.

 

Standards to be implemented

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by, among other provisions, recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. For public companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted.  In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) lease classification or (c) determination of initial direct costs, as of the adoption date, which effectively allows entities to carryforward accounting conclusions under previous U.S. GAAP.   In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities an optional transition method to apply the guidance under Topic 842 as of the adoption date, rather than as of the earliest period presented.  The Company will adopt Topic 842 on January 1, 2019, using the optional transition method to apply the new guidance as of January 1, 2019, rather than as of the earliest period presented, and elected the package of practical expedients described above.  The Company is still finalizing implementation, but expects to record additional operating liabilities and corresponding right-of-use assets of less than $25 million as of January 1, 2019, based on the present value of the remaining lease payments. 

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments. This standard amends several aspects of the measurement of credit losses on financial instruments, including trade receivables. The standard replaces the existing incurred credit loss model with the Current Expected Credit Losses (CECL) model and amends certain aspects of accounting for purchased financial assets with deterioration in credit quality since origination. Under CECL, the allowance for losses for financial assets that are measured at amortized cost reflects management’s estimate of credit losses over the remaining expected life of the financial assets, based on historical experience, current conditions and forecasts that affect the collectability of the reported amount. The standard is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted for annual and interim periods beginning after December 15, 2018. Adoption is through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (a modified-retrospective approach). The impact of adoption on the Company’s consolidated financial statements will depend on, among other things, the economic environment and the type of financial assets held on the date of adoption.

 

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which changes the recognition and presentation requirements of hedge accounting, including eliminating the requirement to separately measure and report hedge ineffectiveness and presenting all items that affect earnings in the same income statement line item as the hedged item. The ASU also provides new alternatives for applying hedge accounting to additional hedging strategies, measuring the hedged item in fair value hedges of interest rate risk, reducing the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing, hedge documentation and application of the critical terms match method and reducing the risk of a material error correction if a company applies the shortcut method inappropriately. This ASU is effective for public companies in fiscal years beginning after December 15, 2018, which for the Company will be the first quarter of 2019, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), — Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the update. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

3.        SALE OF NEWPORT GRAND

 

On March 4, 2015, TRMG entered into an agreement to purchase Newport Grand Casino by acquiring the interest in a purchase agreement held by a third party for (i) $5.5 million in cash, and (ii) the right for the third party to be the exclusive broker on the sale of Newport Grand’s land and to receive 25% of the net cash proceeds realized by TRMG upon the ultimate sale of the land if the casino changed locations (“Participation Rights”).

 

In November 2016, the Company received state and town referendum approval to terminate the existing Newport Grand Casino gaming license and issue a new gaming license to a new casino to be developed in Tiverton, Rhode Island. The associated referendum costs of $5.0 million are included in the consolidated statements of operations and comprehensive income for the year ended December 31, 2016.

On January 17, 2018, Newport Grand entered into a Purchase and Sale Agreement (the “Sale Agreement”) with a third party (the “Buyer”), pursuant to which the Buyer acquired the land and building relating to Newport Grand for $10.2 million in a transaction that closed on May 1, 2018. The Company leased back the Newport Grand from May 1, 2018 until November 1, 2018 at which time it vacated the property. This lease is accounted for as an operating lease. On August 28, 2018, Newport Grand was closed, and Tiverton Casino Hotel was opened on September 1, 2018.

 

As of January 17, 2018, Newport Grand met the accounting guidance for assets held for sale, thus the Company recorded an impairment loss of $4.2 million for the difference between the fair value and the carrying value of the land, building and building improvements included in the Sale Agreement. The Company also recorded an expense of $2.4 million, in accordance with ASC 450, Contingencies, as the amount due for the Participation Rights became probable and reasonably estimable on this date. The move from Newport Grand to Tiverton Casino Hotel occurred on September 1, 2018.

 

The following sets forth the calculation of the Newport Grand disposal loss on the date the Company entered into the Sale Agreement:

 

Sale price  $10,150 
Land, building and improvement costs sold or written off   (12,993)
Transaction costs   (669)
Impairment loss   (3,512)
Participation fees   (2,373)
Land, building and improvement disposal loss   (5,885)
Equipment written-off upon facility closure   (629)
Newport Grand disposal loss  $(6,514)

 

The sale of the Newport Grand assets did not qualify as a discontinued operation as the sale is not a strategic shift that has (or will have) a major effect on the Company’s operations and financial results.

 

4.       RELATED PARTY TRANSACTIONS

 

Notes Receivable from Officers, Directors and Employees

 

In July and November 2015, in connection with the exercise of stock options under the 2010 BLB Worldwide Holdings, Inc. Stock Option Plan (see Note 8 “Equity Plans”), certain officers, directors and employees executed Secured Promissory Notes payable to TRMG (the “Secured Notes”) in amounts equal to the total exercise price of their stock options plus, in the case of certain officers, the amount of income taxes payable in connection with the exercise. In April 2016, certain directors executed secured promissory notes payable to TRMG in amounts equal to the amount of income taxes payable in connection with the July 2015 exercise.

 

The notes bore interest at rates ranging from 1.33% to 1.84%. Any unpaid interest at the end of a calendar quarter is added to the principal of the note, thereby compounding quarterly. The notes were secured by the shares issued in connection with the stock option exercise and were therefore considered nonrecourse for accounting purposes. As such, (i) the purchase of common stock with promissory notes continued to be accounted for as stock options and (ii) no receivable for amounts due under the promissory notes for the exercise price of the stock options was recorded on the Company’s consolidated balance sheets.

As of December 31, 2017, there were $4.3 million of nonrecourse notes outstanding. During 2017, $0.3 million of the nonrecourse notes were repaid. The remaining balance of the nonrecourse notes was repaid during 2018. As of December 31, 2018, there were no nonrecourse notes outstanding. The Company considered the repayment of these notes as an exercise of stock options. Interest associated with the nonrecourse notes is less than $0.1 million for the years ended December 31, 2018, 2017 and 2016.

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

The principal amount due for taxes from officers, directors and employees was fully paid during 2018 and as of December 31, 2017 was $5.3 million. Additionally, as of December 31, 2017, the Company had a note receivable from an employee that is collateralized by the employee’s stock for $0.1 million which was repaid during 2018. The principal due for taxes and the note receivable from such employee were repaid during 2018. The principal amount due for taxes and the note receivable from such employee as of December 31, 2017 were included in receivables from related parties in the consolidated balance sheets. Interest income related to the receivables from related parties is less than $0.1 million in each of the years ended December 31, 2018 and 2017 and 2016.

5.       INTANGIBLE ASSETS

 

As of December 31, 2018, identifiable intangible assets for the Company were comprised of the following:

 

  

Weighted
average

remaining life

   Gross   Accumulated   Net 
   (in years)   amount   amortization   Amount 
Amortizable intangible assets:                    
Rhode Island contract for VLT's   1.6   $29,300   $(24,611)  $4,689 
Twin River Casino trade name   1.8    15,600    (12,724)   2,876 
Hard Rock license   28.5    8,000    (1,091)   6,909 
Rated player relationships   5.4    6,945    (4,014)   2,931 
Other   4.2    680    (359)   321 
Total amortizable intangible assets        60,525    (42,799)   17,726 
                     
Intangible assets not subject to amortization:                    
Rhode Island VLT license   Indefinite    92,108    -    92,108 
Novelty game licenses   Indefinite    270    -    270 
Total unamortizable intangible assets        92,378    -    92,378 
Total intangible assets, net       $152,903   $(42,799)  $110,104 

 

At December 31, 2017, identifiable intangible assets for the Company were comprised of the following:

 

   Weighted
average
remaining life
   Gross   Accumulated   Net 
   (in years)   amount   amortization   Amount 
Amortizable intangible assets:                    
Rhode Island contract for VLT's   2.6   $29,300   $(21,594)  $7,706 
Twin River and Newport Grand trade names   2.8    15,890    (11,449)   4,441 
Hard Rock license   29.5    8,000    (849)   7,151 
Rated player relationships   6.3    6,980    (3,480)   3,500 
Other   5.2    680    (281)   399 
Total amortizable intangible assets        60,850    (37,653)   23,197 
                     
Intangible assets not subject to amortization:                    
Rhode Island VLT license   Indefinite    91,900    -    91,900 
Novelty game licenses   Indefinite    270    -    270 
Total unamortizable intangible assets        92,170    -    92,170 
Total intangible assets, net       $153,020   $(37,653)  $115,367 

 

Amortization of intangible assets was approximately $5.5 million, $5.6 million and $5.6 million for the years ended December 31, 2018, 2017 and 2016, respectively.

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

The following table shows the remaining amortization expense associated with finite lived intangible assets as of December 31, 2018:

 

2019  $5,467 
2020   3,877 
2021   889 
2022   875 
2023   837 
Thereafter   5,781 
   $17,726 

 

6.        ACCRUED LIABILITIES

 

As of December 31, 2018 and 2017, accrued liabilities consisted of the following:

 

 

   December 31, 
   2018   2017 
Gaming liabilities  $18,740   $18,121 
Compensation   16,622    12,280 
Legal   3,784    1,336 
Construction accruals   3,677    14,802 
Property taxes   2,582    2,625 
Other   12,373    8,685 
Total accrued liabilities  $57,778   $57,849 

 

7.        LONG TERM DEBT

 

As of December 31, 2018 and 2017, long term debt consisted of the following:

 

   December 31, 
   2018   2017 
Term Loan principal  $342,439   $376,966 
Less: Unamortized original issue discount   (1,028)   (1,894)
Less: Unamortized deferred financing fees   (2,239)   (3,872)
Less: Current portion   (3,595)   (33,325)
Term loan, net of current portion, discount and deferred financing fees   335,578    337,875 
           
Revolver   55,000    20,000 
Long term debt, net of discount and deferred financing fees  $390,578   $357,875 

 

Credit Agreements

 

On July 10, 2014, the Company entered into a credit agreement (“Credit Facility”) which included a term loan (“Term Loan”) in the principal amount of $480.0 million and an original issue discount of 1%, payable in quarterly installments of $1.2 million with the balance payable upon maturity on July 10, 2020. Future quarterly installments and the final balance payable upon maturity are reduced pro rata by any required or voluntary prepayments, which are not subject to a prepayment penalty. In addition to the mandatory payments above, the Company is required to prepay the loan annually by a certain percentage of Excess Cash Flow, as defined, determined as of the last day of the calendar year and paid in March of the following year. There was no Excess Cash Flow payment due for the year ended December 31, 2018. The required Excess Cash Flow payments for the years ended December 31, 2017 and 2016 were $29.7 million and $31.8 million, respectively. In December 2016, the Company made a $25.0 million voluntary prepayment and the required Excess Cash Flow payment of $6.8 million was paid in March of 2017. There were no voluntary prepayments during 2017. The required Excess Cash Flow payment of $29.7 million was made in March of 2018 and is included in the current portion of term loan in the consolidated balance sheets at December 31, 2017.

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

The Credit Facility also includes a revolving credit facility (“Revolving Credit Facility”) with an original capacity of $40.0 million. During the year ended December 31, 2016, two incremental amendments were executed which expanded the Revolving Credit Facility capacity to $100.0 million. The Revolving Credit Facility has a maturity date of January 10, 2020.

 

The interest rate for the Term Loan and the Revolving Credit Facility is based on LIBOR, with a LIBOR floor of 1.00% on the Term Loan, plus a 3.50% interest rate margin per annum in the case of both the Term Loan and Revolving Credit Facility. Both the Term Loan and the Revolving Credit Facility are pre-payable at any time, provided notice is given. The interest rate for the Term Loan was 6.30% and 5.19% as of December 31, 2018 and 2017, respectively.

 

As of December 31, 2018 and 2017, the Revolving Credit Facility balance was $55.0 million and $20.0 million, respectively, and amounts available were $45.0 million and $79.6 million, respectively, reflecting letters of credit issued of $0.4 million at December 31, 2017. The weighted average interest rate on outstanding borrowings on the Revolving Credit facility was 6.26%, 5.13% and 5.25% on December 31, 2018, 2017 and 2016, respectively.

 

On May 21, 2015, the Credit Facility was amended to allow for the acquisition of Newport Grand and the potential relocation of the Newport VLT License to the proposed casino to be developed in Tiverton, Rhode Island. On December 23, 2015, the Credit Facility was amended to allow for certain provisions to accelerate a portion of the restricted payment basket that would have otherwise become available on March 31, 2016. On October 31, 2016, the Credit Facility was amended to allow for capital expenditures of $75.0 million for Tiverton Casino Hotel and $25.0 million for construction of a hotel at Twin River Casino Hotel’s facility. On February 9, 2017, the Credit Facility was amended to reduce the interest rate margin on LIBOR borrowings from 4.25% per annum to 3.50% per annum and to extend the Revolving Credit Facility maturity date to January 10, 2020. On February 14, 2018, the Credit Facility was amended to, among other things, increase the allowance for capital expenditures to $150.0 million for Tiverton Casino Hotel and $35.0 million for the hotel construction at the Twin River Casino Hotel facility. On December 19, 2018, the Credit Facility was amended to allow for the Dover Downs Transaction. See Note 12 “Dover Downs Transaction”.

 

Collateral and Debt Covenants

 

The Credit Facility is collateralized by substantially all of the assets of Twin River Casino Hotel, Tiverton Casino Hotel, Hard Rock Biloxi and Newport Grand. On February 14, 2018, the Company amended the Credit Facility to also make Tiverton Casino Hotel a Subsidiary Guarantor and pledged substantially all of its assets as security under the Credit Facility. The Credit Facility contains certain affirmative, negative and financial covenants, including compliance with a maximum leverage ratio when more than 20% of the capacity is drawn on the Revolving Credit Facility and limitations on capital expenditures. The Credit Facility also restricts the Company from making certain restricted payments, including dividends, subject to certain exceptions. Further, the Credit Facility restricts the Company’s ability to make any payment on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any equity interests in the Company, TRMG or any subsidiary guarantor, subject to certain exceptions. There were no operations at Twin River Worldwide Holdings, Inc. for the years ending December 31, 2018, 2017 and 2016 and only $243,000 in cash held as of both December 31, 2018 and 2017. The Company is currently in compliance with all covenants as of December 31, 2018 and 2017.

 

Debt Maturities

 

As of December 31, 2018, the contractual annual principal maturities of long-term debt, including the Revolving Credit Facility, were as follows:

 

2019  $3,595 
2020   393,844 
   $397,439 

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

8.        EQUITY PLANS

 

Stock Options

 

Liability-Classified Awards

 

On June 14, 2011, the Board of Directors approved the 2010 BLB Worldwide Holdings, Inc. Stock Option Plan (the “2010 Option Plan”) that provided for options to acquire 2,455,368 shares of the Company’s common stock. Options granted to employees, officers and directors of the Company under the 2010 Option Plan vested on various schedules by individual as defined in the individual participants’ option agreements. Vested options can generally be exercised all or in part at any time until the tenth anniversary of the date of grant. The Company issues new shares of its common stock when options are exercised.

 

Incentive Award Agreements

 

Effective January 1, 2013, the Company entered into Incentive Award Agreements with option holders under the 2010 Option Plan. Upon the occurrence of a Triggering Event, as defined, holders of Incentive Awards are entitled to a cash payment based on the difference, if any, between (1) the amount the option holder would have received in connection with such Triggering Event, assuming all of the CVRs had been extinguished (see Note 14 “Commitment and Contingencies”) and (2) the amount the option holder would have received in connection with such Triggering Event, assuming all of the CVRs had not been extinguished. Such cash payment was also to be paid in cases where an individual’s options were previously cancelled or exercised. In November 2016, the Incentive Award Agreements were settled for a total payment of $3.8 million, which amount was determined by reference to the $450 per CVR price paid in the Company’s CVR Tender Offer (Note 14 “Commitment and Contingencies”), and previously recognized non-cash stock compensation of $3.4 million was reversed. The $3.8 million aggregate payment was recorded as compensation expense and included in advertising, general and administrative expense in the consolidated statement of operations and comprehensive income for the year ended December 31, 2016.

 

Exercises and Related Notes Receivable and Puts

 

In July and November 2015, certain employees and directors exercised a combined total of 1,864,428 stock options (the “Financed Options”) and executed promissory notes to TRMG in connection with those exercises to finance the exercise price and associated income taxes. The notes are considered nonrecourse for accounting purposes. As such, (i) the purchases of common stock with a promissory note continued to be accounted for as stock options and (ii) no receivable for amounts due under the promissory notes for the exercise price of the Financed Options were recorded on the Company’s consolidated balance sheets. See Note 4 “Related Party Transactions”.

 

On August 19, 2015, all previously issued option agreements under the 2010 Option Plan were amended (the “Put Amendment”), allowing the participant to request purchase by the Company (“Put”) during April or October each year beginning in 2016 (“Put Periods”) of up to one-third of any previously issued shares or vested but unexercised options under the 2010 Option Plan for Fair Market Value, as defined, less the applicable exercise price in the case of vested but unexercised options. Participants must be currently employed by the Company or serving as a director of the Company at the time of the request. Any purchases by the Company during a Put Period are subject to limitations contained in the Credit Facility. In March 2018, the Company revised the Put Periods from April and October to four periods in each year, subject to anticipated blackout periods. In December 2018, all outstanding options under the 2010 Option Plan were amended to remove the Put rights. See Note 9 “Temporary Equity”.

 

Certain employees and directors Put a total of 331,112 and 93,332 Financed Options to the Company at $23.50 and $24.38 per share and paid the related promissory notes with a portion of the proceeds during the years ended December 31, 2018 and 2017, respectively. The shares are included in Treasury stock in the consolidated balance sheets after the respective Put dates. During the year ended December 31, 2018, in addition to the Put shares discussed above, promissory notes related to 1,439,984 Financed Options were paid. No additional promissory notes were paid for the year ended December 31, 2017. On the date the promissory notes are paid, the options are considered exercised and the common stock is considered issued for accounting purposes. As of December 31, 2018, there are no Financed Options outstanding.

 

Exercises for Cash and Puts of Unexercised Options

 

During 2016, 82,272 vested but unexercised options were Put to the Company at $12.56 per share and 13,332 options were exercised, with cash paid for the exercise price. During 2017, 13,336 vested but unexercised options were Put to the Company at $24.38 per share and 54,976 options were exercised, with cash paid for the exercise price. During the years ended December 31, 2018, no vested but unexercised options were Put to the Company and no options, excluding the Financed Options, were exercised.

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

A summary of stock option activity under the 2010 Option Plan is as follows:

 

   Shares   Weighted
Average
Exercise
Price
 
Outstanding at December 31, 2015   2,137,908   $2.71 
Put and cancelled   (82,272)  $4.31 
Exercised    (13,332)  $6.53 
Outstanding at December 31, 2016   2,042,304   $2.62 
Put and cancelled   (13,336)  $6.53 
Exercised    (148,308)  $3.49 
Outstanding at December 31, 2017   1,880,660   $2.53 
Exercised    (1,771,096)  $2.42 
Outstanding at December 31, 2018   109,564   $4.31 

 

In December 2018, when the Put rights were removed, the awards were reclassified from liability classified awards to equity classified awards. Upon the modification of the awards, the intrinsic value of the outstanding stock options of $2.9 million was moved from the stock options liability to additional paid in capital in the consolidated balance sheets. For the year ended December 31, 2018 the Company recorded a reduction to compensation expense of $3.2 million to adjust the stock options to the intrinsic value as of the date the stock options were exercised or reclassified to equity classified awards.

 

Prior to the removal of the Put rights in December 2018, the stock options were classified as liability classified options, thus at the end of each reporting period, the Company recognized share-based compensation expense for changes in the intrinsic value of the vested awards and the portion of the unvested awards that had been recorded in expense. All awards were vested as of December 31, 2017. Upon exercise, the Company recognized share-based compensation expense for the difference between the fair market value on the date of exercise and previously recognized compensation expense. The intrinsic value of options outstanding under the 2010 Option Plan was $46.5 million as of December 31, 2017. The Company recorded compensation expense of $16.1 million and $5.7 million (net of the $3.4 million reversal related to cancelled Incentive Award Agreements referred to above) in connection with the 2010 Option Plan for the years ended December 31, 2017 and 2016, respectively.

 

The total intrinsic value of options exercised or unvested options Put to the Company and cancelled was $40.5 million and $3.4 million for the years ended December 31, 2018 and 2017, respectively.

 

All awards were vested as of December 31, 2017. Accordingly, there was no remaining compensation cost relating to unvested awards under the 2010 Option Plan as of December 31, 2018 or December 31, 2017. Effective December 9, 2015, it was determined that no new awards would be granted under the 2010 Option Plan.

 

Restricted Stock Units and Performance-Based Restricted Stock Units

 

Equity-Classified Awards

 

On December 9, 2015, the Company adopted the Twin River Worldwide Holdings, Inc. 2015 Stock Incentive Plan (“2015 Incentive Plan”). The 2015 Incentive Plan provides for the grant of Stock Options, Restricted Stock Awards, Restricted Stock Unit Awards and Other Stock-Based Awards to employees, directors or consultants of the Company. The 2015 Incentive Plan provides for the issuance of 1,700,000 shares of common stock. As of December 31, 2018, 1,436,052 shares were available for grant under the 2015 Incentive Plan. Under the 2015 Incentive Plan, both time-based Restricted Stock Units (“RSUs”) and performance-based Restricted Stock Units (“PSUs”) have been awarded to members of the Company’s senior management and certain members of its Board of Directors. Each RSU and PSU represents the right to receive one share of the Company’s common stock.

 

The RSUs generally vest in one-third increments over a three-year period, and compensation cost is recognized over the respective service periods based on the grant date fair value.

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

Up to one third of the PSUs may become eligible for vesting upon attainment of performance objectives for each of the subsequent three years. The number of PSUs that may become eligible for vesting varies and is dependent upon whether the performance targets are met, partially met or exceeded each year. All PSUs that become eligible for vesting based on achievement of the performance criteria will cliff vest at the end of the three-year period.

 

The performance objectives for each year are established no later than 90 days following the start of the year. As the performance targets have not yet been established for the PSUs that are eligible to be earned in 2019, a grant date has not yet been established for those awards in accordance with ASC 718, Compensation — Stock Compensation. The grant date for the 2018, 2017 and 2016 performance periods have been established and, based upon achievement of the performance criteria for the years ended December 31, 2017 and 2016, 66,644 and 35,236 PSUs, respectively, became eligible for vesting. For the 2018 performance period the Company did not achieve the performance target, thus no shares became eligible to vest.

 

Under the terms of the above awards, shares of the Company’s stock are issued upon vesting of the awards, unless deferral is elected by the participant at the time of the award. The Company removed the Put rights from the award agreements in December 2018, prior to that time, at the election of the participant, issued shares may be Put to the Company at fair value during any Put Period that is three years following the vesting date. Additionally, subject to certain provisions, the Company may purchase shares in the event of a change in control or a qualified initial public offering of the Company’s stock, both as defined in the award agreements.

 

A summary of the equity classified RSU and PSU activity is as follows:

 

 

   Restricted Stock
Units
   Performance
 Stock Units
   Weighted
Average
 Grant Date
 Fair Value
 
Outstanding at December 31, 2015   50,916    -      
Granted   -    47,276   $13.68 
Forfeited   -    (12,040)     
Outstanding at December 31, 2016   50,916    35,236      
Granted   64,720    77,616   $20.15 
Vested   (36,256)   -      
Forfeited   -    (10,972)     
Outstanding at December 31, 2017   79,380    101,880      
Granted   5,236    77,616   $27.15 
Vested   (46,064)   -      
Forfeited   -    (77,616)     
Outstanding at December 31, 2018   38,552    101,880      

 

The total remaining compensation cost related to awards with an established grant date under the 2015 Incentive Plan as of December 31, 2018 is $0.3 million and will be recognized over a period of 24 months. The Company recorded compensation expense of $1.7 million, $1.7 million and $0.6 million in connection with these awards for the years ended December 31, 2018, 2017 and 2016, respectively.

 

Liability-Classified Awards

 

On January 1, 2018, the Company granted RSU’s to certain employees with a cash settlement feature. The actual amount of cash will be determined by the number of RSUs to be settled in cash multiplied by the share price of Twin River common stock at the time of settlement. These awards vest in one-third increments as of December 31, 2018, 2019 and 2020.

 

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Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

A summary of the liability classified RSU activity is as follows:

 

   Restricted
Stock Units
   Weighted
Average
Grant
Date Fair
Value
 
Outstanding at December 31, 2017   -      
Granted    33,616   $25.50 
Vested and settled for cash   (11,208)     
Outstanding at December 31, 2018   22,408      

 

For the year ended December 31, 2018, in connection with these awards, the Company recorded compensation expense of $0.6 million. The 11,208 vested RSUs were settled for $0.3 million of cash in January of 2019.

 

Valuation of Equity Compensation Awards

 

The fair values of the shares of common stock underlying the Company’s liability classified awards, RSUs and PSUs were estimated on each grant date by the board of directors. In order to determine the fair value, the Company’s board of directors considered, among other things, valuations of its common stock in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately Held Company Equity Securities Issued as Compensation, or the Practice Aid. Given the absence of a public trading market of Twin River’s common stock, its board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of its common stock. The board of directors used an income approach, weighted 50%, and a market approach, weighted 50%.

For the income approach, the Company performed a discounted cash flow analysis, which utilized projected cash flows as well as a residual value, which were discounted to the present value in order to arrive at an enterprise value. The Company relied on the following key assumptions for the income approach, in addition to management projections for the business:

 

·a weighted average cost of capital (WACC), which served as the discount rate applied to forecasted future cash flows to calculate the present value of those cash flows; and

 

·a long-term growth rate assumption, which was used to calculate the residual value of the Company’s before discounting to present value.

 

·For the market approach, the Company utilized the guideline company method and comparable transaction method by analyzing separately a population of comparable companies and comparable transactions and selected those companies considered to be the most comparable to the Company in terms of business description, size, growth, profitability, risk and return on investment, among other factors. The Company then used these guideline companies and comparable transactions to develop relevant market multiples and ratios, which were applied to the corresponding latest twelve months and forward financials to estimate total enterprise value. The Company relied on the following key assumptions for the market approach:

 

·the Company’s projected financial results determined as of the valuation date based on its best estimates; and

 

·multiples of enterprise value to EBITDA, determined as of the valuation date, based on a group of comparable companies and comparable transactions.

 

9.        TEMPORARY EQUITY

 

In accordance with the Put Amendment, at the election of the participant, shares issued upon the exercise of stock options or the vesting of RSUs and PSUs may be Put to the Company at fair value during any Put Period after the stock option exercise or during any Put Period that is three years following the vesting date of the RSUs and PSUs.

 

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Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

For the year ended December 31, 2017, 54,976 shares of redeemable common stock were issued and remained outstanding and were subject to a Put, respectively, upon exercise of stock options. For the year ended December 31, 2017, 16,968 shares of redeemable common stock were issued and remained outstanding, respectively, upon vesting of RSUs. For the year ended December 31, 2017, the redeemable shares of common stock were classified outside of permanent equity in temporary equity in the consolidated balance sheets. The Company recorded the redeemable shares of common stock at fair value at the end of each reporting period and reflected the period to period change as a deemed dividend related to change in fair value of common stock subject to possible redemption in the consolidated statements of operations and comprehensive income.

 

In January 2018, 25,136 shares of redeemable common stock were issued and remained outstanding, respectively, upon vesting of RSUs. In December 2018, all outstanding equity awards were amended to remove the Put rights. See Note 8 “Equity Plans”. Upon the removal of the Put rights, the fair value of the 357,224 shares of common stock that were no longer redeemable were reclassified from temporary equity to common stock and additional paid in capital in permanent equity in the consolidated balance sheets.

 

The following table summarizes the Company’s redeemable common stock activities for the years ended December 31, 2018 and 2017:

 

   Shares Subject   Total 
   to Redemption   Temporary Equity 
Balance as of December 31, 2016   260,144    4,995 
Release of restricted units for common stock subject to possible redemption   16,968    326 
Stock options exercised for common stock subject to possible redemption   54,976    1,388 
Deemed dividends related to change in fair value of common stock subject to possible redemption   -    2,344 
Balance as of December 31, 2017   332,088    9,053 
Release of restricted units for common stock subject to possible redemption   25,136    685 
Deemed dividends related to change in fair value of common stock subject to possible redemption   -    (640)
Common stock no longer subject to possible redemption due to extinguishment of Puts   (357,224)   (9,098)
Balance as of December 31, 2018   -   $- 

 

10.        SHAREHOLDERS’ EQUITY

 

The Company is authorized to issue up to 100,000,000 shares of common stock, par value $0.01 per share.

 

In December 2016, the Company purchased 1,000,000 shares of its common stock for cash at a price per share of $20.00, for an aggregate price of $20.0 million, pursuant to a tender offer (the “Stock Tender”). These shares are included in treasury stock in the consolidated balance sheets.

 

In connection with the Put Amendment (see Note 8 “Equity Plans”), certain employees and directors Put a total of 331,112 and 93,332 Financed Options to the Company at $23.50 and $24.38 per share and paid the related promissory notes (see Note 4 “Related Party Transactions”) with a portion of the proceeds during the years ended December 31, 2018 and 2017, respectively. Additionally, one employee Put 7,536 shares, at $23.50, that were used as collateral for a promissory note (see Note 4 “Related Party Transactions”) and paid the promissory note with a portion of the proceeds during the year ended December 31, 2018. The shares are included in treasury stock in the consolidated balance sheets after the respective Put dates.

 

Stock Dividend

 

On January 18, 2019, the Board of Directors approved the Company’s 4-for-1common stock dividend, accounted for as a stock split. See Note 1 “General Information”.

 

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Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

11.        EMPLOYEE BENEFIT PLANS

 

Multi-employer Defined Benefit Plans

 

The Company participates in and contributes to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover certain of its union-represented employees. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:

 

a.Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.

 

b.If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

 

c.If the Company chooses to stop participating in some of its multiemployer plans, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

The following table outlines the Company’s participation in multiemployer pension plans for the years ended December 31, 2018, 2017 and 2016 and sets forth the calendar year contributions and accruals for each plan. The “EIN/Pension Plan Number” column provides the Employer Identification Number (“EIN”) and the three-digit plan number. The most recent Pension Protection Act zone status available in 2018 and 2017 relates to the plans’ two most recent fiscal year-ends. The zone status is based on information that the Company received from the plans’ administrators and is certified by each plan’s actuary. Plans certified in the red zone are generally less than 65% funded, plans certified in the orange zone are both less than 80% funded and have an accumulated funding deficiency or are expected to have a deficiency in any of the next six plan years, plans certified in the yellow zone are less than 80% funded, and plans certified in the green zone are at least 80% funded. The “FIP/RP Status Pending/Implemented” column indicates whether a financial improvement plan (“FIP”) for yellow/orange zone plans, or a rehabilitation plan (“RP”) for red zone plans, is either pending or has been implemented. As of December 31, 2018 and 2017, all plans that have either a FIP or RP requirement have had the respective plan implemented.

 

    EIN/ Pension   Pension Protection Act
Zone Status
  FIP/RP Status
Pending/
  Contributions and Accruals (in $000's)     Company
Contributions>
  Union
Contract
Pension Fund Plan Number 2018 2017   Implemented 2018   2017   2016   5%   Expires
SEIU National Industry Pension Fund   52-6148540   Red   Red   Yes/Implemented   $ 845     $ 659     $ 633     No   4/30/2019
Rhode Island Carpenters Pension Fund (1)   05-6016572   Green   Green   No     138       106       79     No   6/2/2020
Plumbers and Pipefitters Pension Fund   52-6152779   Yellow   Yellow   Yes/Implemented     311       267       256     No   8/31/2019
Rhode Island Laborers Pension Fund   51-6095806   Green   Green   No     934       929       944     Yes   7/31/2019
New England Teamsters Pension Fund   04-6372430   Red   Red   Yes/Implemented     582       541       536     No   6/30/2020
Hotel & Restaurant Employees International Pension Fund-Legacy Plan (3)   13-6130178/001   Red   Red   Yes/Implemented     1,474       783       930         6/30/2021
Hotel & Restaurant Employees International Pension Fund-Adjustable Plan (3)   13-6130178/002   N/A (2)       No    
Total Contributions                   $ 4,283     $ 3,285     $ 3,378          

  

 

(1)Effective January 1, 2018, the RI Carpenters Pension Fund merged into the New England Carpenters Pension Fund (EIN – 51-6040899), which also has a green status for the pension protection act zone status.
(2)The Plan is not subject to the Pension Protection Act of 2016 zone status certification rule
(3)Allocations of contributions between the two plans are determined by the plan administrator

 

Contributions, based on wages paid to covered employees totaled approximately $4.3 million, $3.3 million and $3.4 million for the years ended December 31, 2018, 2017 and 2016, respectively. These aggregate contributions were not individually significant to any of the respective plans. The Company’s share of the unfunded vested liability related to its multi-employer plans, if any, other than the New England Teamsters and Trucking Industry Pension Fund discussed below, is not determinable.

Under the terms of certain collective bargaining agreements, the Company contributes to a number of multi-employer annuity funds. Contributions are made at a fixed rate per hour worked, in accordance with the collective bargaining agreements. These plans are not subject to the withdrawal liability provisions applicable to multi-employer defined benefit pension plans. Contributions made to these plans by the Company were $2.7 million, $2.4 million and $2.4 million for the years ended December 31, 2018, 2017 and 2016, respectively.

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

401(k) Plan

 

The Company has a retirement savings plan under Section 401(k) of the Internal Revenue Code covering non-union employees and certain union employees. The plan allows employees to defer up to the lesser of the Internal Revenue Code prescribed maximum amount or 100% of their income on a pre-tax basis through contributions to the plan. Total voluntary contributions to the 401(k) profit-sharing plan were $1.0 million, $0.9 million and $0.8 million for the years ended December 31, 2018, 2017 and 2016, respectively.

 

New England Teamsters and Trucking Industry Pension Fund

 

The New England Teamsters and Trucking Industry Pension Fund (the “Pension Fund”) is in critical and declining status. On September 30, 2018, the Company entered into an agreement to withdraw from the Pension Fund and is not expected to have any further obligation to contribute to the Pension Fund following the withdrawal payment of $3.7 million the Company paid in October 2018. The Company recorded $3.7 million in advertising, general and administrative in the consolidated statements of operations and comprehensive income for the year ended December 31, 2018. On October 1, 2018, the Company entered into an agreement to re-enter the Pension Fund as a new employer and to contribute specified rates in the new agreement. The agreements have been ratified by the union and the trustees of the Pension Fund.

 

12.        DOVER DOWNS TRANSACTION

 

On July 22, 2018, the Company entered into an Agreement with Dover Downs and the Merger Sub pursuant to which among other things and subject to the conditions set forth therein, Merger Sub will merge with and into Dover Downs with Dover Downs becoming an indirect wholly-owned subsidiary of the Company. The Merger, which closed on March 28, 2019, resulted in Dover Downs shareholders exchanging their Dover Downs stock for Twin River common shares representing 7.225% of the equity in the combined company at closing. A total of 2,977,100 shares of common stock were issued at the transaction closing on March 28, 2019 and the valuation of those shares was based on the closing price of Dover Downs’ common stock on March 27, 2019.

 

   March 28, 2019 
Dover Downs shares outstanding   33,125,997 
Closing Dover Downs share price on March 27, 2019  $2.62 
Total fair value of stock purchased  $86,790 
Cash paid by TRWH at closing, including amounts to retire Dover Downs debt, inclusive of accrued interest  $29,096 
Consideration Transferred - Preliminary   $115,886 

 

The preliminary purchase price, net of cash acquired, was approximately $98.1 million. This preliminary purchase price excludes transaction costs. For the year ended December 31, 2018, the Company incurred $6.6 million of transaction costs related to the Merger and becoming a publicly traded company, included in advertising, general and administrative in the consolidated statements of operations and comprehensive income. The Company did not incur any transaction costs related to the Merger and becoming a publicly traded company for the years ended December 31, 2017 and 2016.

 

The Company will account for the Merger as a business combination under the acquisition method of accounting.  As such, the purchase price will be allocated to the net assets acquired, inclusive of intangible assets, with any excess fair value recorded to goodwill. Since the closing date of the acquisition occurred subsequent to the end of the reporting period, the allocation of purchase price to the underlying net assets has not yet been completed.  The Company will reflect the preliminary purchase price allocation in its consolidated financial statements for the year ending December 31, 2019.

 

In conjunction with closing, Twin River registered its shares with the Securities and Exchange Commission and listed the shares on the NYSE on March 29, 2019.

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

13.        INCOME TAXES

 

The components of the provision for income taxes were as follows:

 

   Years Ended December 31, 
   2018   2017   2016 
Current taxes               
Federal  $(15,262)  $(38,400)  $(30,015)
State   (5,217)   (5,587)   (4,176)
    (20,479)   (43,987)   (34,191)
Deferred taxes               
Federal   (5,760)   5,437    (3,951)
State   (120)   (311)   (411)
    (5,880)   5,126    (4,362)
Provision for income taxes  $(26,359)  $(38,861)  $(38,553)

 

The effective rate varies from the statutory U.S. federal tax rate as follows:

 

   Years Ended December 31, 
   2018   2017   2016 
Income tax expense at statutory federal rate  $20,537   $35,388   $29,160 
State income taxes, net of federal effect   4,308    3,834    3,030 
Nondeductible referendum costs        -    1,768 
Nondeductible professional fees   1,776           
Permanent differences including lobbying expense   236    687    413 
Change in fair value of contingent value rights   -    -    1,663 
Stock Options   (718)   5,167    2,684 
Deferred tax adjustment   -    (552)   - 
Deferred tax impact of TCJA   117    (6,523)   - 
Return to provision adjustments   89    -    (33)
Change in uncertain tax positions   14    860    - 
Change in valuation allowance   -    -    (132)
Total provision for income taxes  $26,359   $38,861   $38,553 
Effective income tax rate on continuing operations   27.0%   38.4%   46.2%

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred income taxes at December 31, 2018 and 2017 are as follows:

 

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Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

   Years Ended December 31, 
   2018   2017 
Deferred tax assets:          
Accrued liabilities and other  $1,818   $1,167 
Tax basis difference in property and equipment   6,190    13,403 
Tax basis difference in stock options   1,694    892 
State tax net operating loss carryforwards   131    5 
Valuation allowance   -    - 
Total deferred tax assets, net  $9,833   $15,467 
           
Deferred tax liabilities:          
Tax basis difference in land  $(1,848)  $(1,838)
Tax basis difference in goodwill   (3,673)   (2,841)
Tax basis difference in intangible assets   (21,838)   (22,434)
Total deferred tax liabilities  $(27,359)  $(27,113)
Net deferred tax liabilities  $(17,526)  $(11,646)

 

The Company will only recognize a deferred tax asset when, based on available evidence, realization is more likely than not. Accordingly, no valuation has been established as of December 31, 2018 and 2017, respectively. During 2016, the valuation allowance had been released due to the expected utilization of deferred tax assets in the State of Colorado. This valuation allowance related to Mile High USA’s net assets for Colorado state tax purposes due to expected losses in this jurisdiction.

 

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the “TCJA”). SAB 118 provides a measurement period that begins in the reporting period that includes the TCJA’s enactment date and ends when an entity has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC 740, however in no circumstance should the measurement period extend beyond one year from the enactment date. In accordance with SAB 118, a company must reflect in its financial statements the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. SAB 118 provides that 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.

 

In accordance with SAB 118, the Company has recorded a provisional estimated income tax benefit of $6.5 million for the year ended December 31, 2017 related to the remeasurement of the Company’s net deferred tax liability and other effects of the TCJA. As a result of the adoption of the TCJA, the Company remeasured the net deferred tax liability at the reduced federal corporate income tax rate. During the fourth quarter of 2018, the Company completed its analysis to determine the deferred tax effect of the TCJA and recorded immaterial adjustments as of December 22, 2018.

 

From time to time, the Company may be subject to audits covering a variety of tax matters by taxing authorities in any taxing jurisdiction where the Company conducts business. While the Company believes that the tax returns filed, and tax positions taken are supportable and accurate, some tax authorities may not agree with the positions taken. This can give rise to tax uncertainties which, upon audit, may not be resolved in the Company’s favor. As of December 31, 2018 and 2017, the Company has recorded tax contingency accruals for uncertain tax positions of approximately $0.4 million and $0.4 million, respectively, which would impact the effective tax rate, if recognized. As of December 31, 2018 and 2017, $0.4 million and $0.4 million of unrecognized tax benefit have been classified as a current liability based on the anticipated cash settlement with the tax authorities within the next 12 months, respectively. A reconciliation of the beginning and ending balances of the gross liability for uncertain tax positions is as follows:

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

   Years Ended December 31, 
   2018   2017   2016 
Uncertain tax position liability at the beginning of the year  $445   $106   $443 
Increases related to tax positions taken during prior period   21    953    - 
Decreases related to tax positions taken during prior periods   -    -    - 
Decreases related to settlements with taxing authorities   (66)   (614)   (337)
Uncertain tax position liability at the end of the year  $400   $445   $106 

 

The Company and its subsidiaries file tax returns in several jurisdictions. The Company remains subject to examination for U.S. federal income tax purposes for the years ended December 31, 2015 through 2018. The Company remains subject to examination for state tax purposes for the years ended December 31, 2012 through 2018 in Colorado, for the years ended December 31, 2013 through 2018 in Rhode Island and for the years ended December 31, 2015 through 2018 in Mississippi. The Company is currently under audit by the State of Colorado for tax years ended December 31, 2012 through 2015. Based on the current status of the Colorado audit, the Company believes no additional reserves are necessary.

 

The Company has a tax sharing agreement with its subsidiaries. Under the agreement, subsidiaries are required to satisfy their separate return liability and pay for benefits realized by virtue of filing a consolidated return. The Company and its subsidiaries made total cash tax payments during 2018 and 2017 of $22.2 million and $41.0 million, respectively, to federal and state taxing authorities. Effective July 10, 2014, the tax sharing agreement was amended to comply with the Credit Facility. The amendment limits payments to any Unrestricted Subsidiaries, as defined in the credit agreement, to the actual payments of tax made by the unrestricted subsidiary directly or indirectly to the consolidated group. As of December 31, 2018, Mile High USA, Inc. and its subsidiaries are unrestricted subsidiaries.

 

14.     COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

Twin River Casino Hotel, Tiverton Casino Hotel, Newport Grand (until its closing on August 28, 2018) and Mile High USA incur expenses (included in racing expenses) for equipment rent and contract service for the operation of pari-mutuel betting equipment, which are considered operating leases. The cost of the equipment rentals is determined by the amount of pari-mutuel handle per racing program and any additional contractual agreements; therefore, future minimum lease payments will vary and are currently not determinable.

 

Hard Rock Biloxi is committed under various operating lease agreements primarily related to property, submerged tidelands and equipment. Generally, these leases include renewal provisions and rental payments, which may be adjusted for taxes, insurance and maintenance related to the property.

 

Hard Rock Biloxi has an agreement with the State of Mississippi for the lease and use of approximately five acres of submerged tidelands for a primary term of thirty years, expiring September 30, 2037. Upon expiration of the primary term, Hard Rock Biloxi will have an option to extend the lease for a renewal term of thirty years. Annual rent for the lease as of December 31, 2018 is approximately $1.2 million and adjusts annually by the increase in the consumer price index.

 

During 2018 Tiverton Casino Hotel became committed under three operating lease agreements primarily related to hardware, software and food and beverage equipment under lease terms ranging between 24 and 36 months.

 

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Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

As of December 31, 2018, future minimum rental commitments under noncancelable operating leases are as follows:

 

As of December 31,     
2019  $2,941 
2020   2,308 
2021   1,688 
2022   1,627 
2023   1,653 
Thereafter   27,252 
   $37,469 

 

Total rent expense for these long-term lease obligations was approximately $2.0 million, $1.5 million and $1.4 million for the years ended December 31, 2018, 2017 and 2016, respectively.

 

Hard Rock License Agreement

 

Under the Hard Rock License agreement, beginning on June 30, 2007, the Company was obligated to pay an annual fee of $1.1 million, which increased to $1.5 million over five years and increases annually thereafter based on the consumer price index, plus fees based on non-gaming revenues. The Company will pay a “Continuing Fee” equal to 3% of the Licensing Fee Revenues and a marketing fee equal to 1% of the Licensing Fee Revenues during the term of the agreement. Fee expense under the license agreement was $3.0 million for the year ended December 31, 2018 and was $2.9 million for each of the years ended December 31, 2017 and 2016, and is included in advertising, general and administrative expenses in the consolidated statements of operations and comprehensive income. As of both December 31, 2018 and 2017, $0.2 million had been accrued and recorded in accrued liabilities in the consolidated balance sheets.

 

Insurance

 

The Hard Rock Biloxi casino is constructed over water on concrete pilings; however, the threat of hurricanes is a risk to the facility. Hard Rock Biloxi’s current insurance policy provides up to $400.0 million in coverage for damage to real and personal property including business interruption coverage. The coverage is provided by a panel of U.S., Bermuda and London based insurers and is comprised of multiple shared primary and excess layers. The coverage is syndicated through several insurance carriers, each with an A.M. Best Rating of A- (Excellent) or better. Although the insurance policy is an all risk policy, any loss resulting from a named storm, is sub-limited to $125 million with a deductible of 2% of insured values subject to a minimum $250,000 and a maximum of $5.0 million.

 

The Company also has a $500,000 Flood Insurance policy with a deductible of $5,000 for building damage and $5,000 for damage to contents.

 

Master Video Lottery Terminal Contract

 

The current term for the Twin River Casino Hotel contract ends July 17, 2020, with two additional five-year options subject to Twin River Casino Hotel meeting minimum employment requirements.

 

The current term for the Tiverton Casino Hotel contract ends November 23, 2020, with two additional five-year options subject to meeting minimum employment requirements. The contract was automatically assigned, pursuant to Rhode Island law, from Newport Grand to Tiverton Casino Hotel upon commencement of gaming operations at the new facility.

 

Legal Matters

 

The Company is involved in various claims and legal actions. On January 9, 2019, Chatham Asset Management, LLC and certain of its affiliates, which collectively own approximately 15% of the Company’s outstanding common stock as of December 31, 2018, filed an amended action in the Delaware Chancery Court against the Company’s directors and certain officers asserting individual and derivative claims. The complaint alleges that the defendants breached their fiduciary obligations by launching a tender offer in 2016 to benefit their own personal interests and the interests of one shareholder, made false and misleading disclosures in connection with the tender offer and improperly made payments to themselves in respect of the settlement of certain Twin River awards. The defendants believe the plaintiffs’ claims are without merit and intend to vigorously defend the action, and the Company believes the action will not have a material adverse effect on our results of operations.

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

The Company’s management believes, based on currently available information, that any liability arising from such litigation, in excess of amounts recorded in the consolidated balance sheets, will not have a material effect on the Company’s financial position, results of operations or cash flows.

 

Contingent Value Rights

 

In connection with the Company’s emergence from Chapter 11 reorganization in November 2010, obligations under the prepetition second priority senior secured credit facility were converted into CVRs of the Company. In the event of a “Transaction” as defined in the CVR agreement, for any such Transaction that closed prior to November 5, 2017, the holders of the CVRs would have been entitled to certain proceeds.

 

The Company valued the CVRs and reflected period-to-period changes therein in the Company’s consolidated financial statements even though the CVRs principally operate to allocate value between shareholders and CVR holders in certain events and do not represent indebtedness or obligations of the Company unless a “Transaction”, as defined in the CVR agreement, occurs before November 5, 2017. The Company valued the CVRs based on an option pricing model where the strike price was the threshold adjusted for dividends or distributions made (or declared) and repayments of principal amounts under the credit facility in place upon the Company’s emergence from bankruptcy. The valuation model included a discounted cash flow analysis including operating projections prepared by management. The valuation model for the CVRs also considers different probabilities of a Transaction.

 

In June 2016, the Company repurchased most of the outstanding CVRs pursuant to a tender offer (the “CVR tender offer”) for $61.7 million, at a price of $450 per right and recorded the increase of $5.9 million from the fair value at December 31, 2015 for the CVRs that were repurchased, in change in fair value of contingent value rights in the consolidated statements of operations and comprehensive income. At December 31, 2016, there was no value related to the remaining CVRs, thus a decrease in fair value of $3.2 million was recorded in change in fair value of contingent value rights in the consolidated statements of operations and comprehensive income. In June 2016, the Company also settled certain litigation related to the CVRs for total payments of $9.7 million which were included in accrued liabilities at December 31, 2015. As of December 31, 2016, the Company estimated the fair value of the remaining CVRs to be zero. The remaining CVRs expired on November 5, 2017.

 

Change in Control Provisions

 

Certain current and former directors and certain members of the management team have agreements with the Company whereby upon a change in control or qualified IPO of the Company, as defined, the individuals will receive a fixed cash payment of approximately $1.9 million in the aggregate. This amount would be reduced if the total equity value of the Company was less than approximately $63.3 million. In September 2015, these agreements were amended, to allow for receipt of one-third of the total cash payment on each of November 5, 2015, 2016 and 2017, subject to continued service as a director or employee of the Company through the applicable date.

 

Certain members of the management team have agreements with the Company which would entitle them to compensation equal to one to two times their base salary in the event of termination within twelve months following a change in control, as defined.

 

15.     SEGMENT REPORTING

 

As of December 31, 2018, the Company has four operating segments: Twin River Casino Hotel, Hard Rock Biloxi, the Tiverton Casino Hotel and Mile High USA. Newport Grand, which represented an immaterial operating segment and operated up until its closing in August 2018, has been aggregated with Twin River Casino Hotel and Tiverton Casino Hotel to form the Rhode Island reportable segment. The Company’s Biloxi reportable segment includes only Hard Rock Biloxi. The “Other” category includes Mile High USA, an immaterial operating segment, and shared services provided by the Company’s management subsidiary.

 

The Company’s operations are all within the United States. The Company does not have any revenues from any individual customers that exceed 10% of total reported revenues.

The following table shows revenues, net loss, and identifiable assets for each of the Company’s reportable segments and reconciles these to amounts shown in the Company’s consolidated financial statements.

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

   Rhode
Island
   Biloxi   Other   Total 
Years Ended December 31,                    
2018                    
Net Revenues  $302,652   $125,137   $9,748   $437,537 
Income (loss) from operations   106,055    23,475    (8,881)   120,649 
Income (loss) before provision for income taxes   97,508    23,479    (23,190)   97,797 
Depreciation and amortization   12,896    9,255    181    22,332 
Interest expense   8,555    13    14,457    23,025 
Capital expenditures, including Tiverton Casino Hotel and new hotel at Twin River Casino   98,700    6,315    23,875    128,890 
                     
2017                    
Net Revenues  $287,859   $122,694   $10,500   $421,053 
Income (loss) from operations   122,791    21,334    (20,402)   123,723 
Income (loss) before provision for income taxes   113,936    21,330    (34,158)   101,108 
Depreciation and amortization   11,911    10,146    147    22,204 
Interest expense   8,857    17    13,935    22,809 
Capital expenditures, including Tiverton Casino Hotel and new hotel at Twin River Casino   8,285    5,124    34,444    47,853 
                     
2016                    
Net Revenues  $279,713   $123,077   $12,027   $414,817 
Income (loss) from operations   113,065    18,282    (18,891)   112,456 
Income (loss) before provision for income taxes   101,432    18,273    (36,313)   83,392 
Depreciation and amortization   13,135    11,761    174    25,070 
Interest expense   11,632    20    14,931    26,583 
Capital expenditures, including Tiverton Casino Hotel and new hotel at Twin River Casino   4,478    5,293    251    10,022 

 

   Rhode
Island
   Biloxi   Other   Total 
As of December 31,                    
2018                    
Goodwill  $83,101   $48,934   $-   $132,035 
Assets  $535,795   $245,376   $1,181   $782,352 
                     
2017                    
Goodwill  $83,101   $48,934   $-   $132,035 
Assets  $405,822   $245,969   $66,343   $718,134 

 

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Twin River Worldwide Holdings, Inc.

 

Notes to Consolidated Financial Statements

(Dollar amounts in tables are in thousands)

 

16.     Selected Quarterly Financial Data (Unaudited)

 

The following table contains quarterly financial information for the years 2018 and 2017. The Company believes that the following information reflects all normal recurring adjustments necessary for a fair statement of the information for the periods presented.

 

   First Quarter   Second Quarter   Third Quarter   Fourth Quarter 
2018                    
Net revenue  $104,806   $110,815   $110,494   $111,422 
Operating expenses  $79,929   $79,391   $80,843   $76,725 
Income from operations  $24,877   $31,424   $29,651   $34,697 
Interest expense, net of income  $(5,699)  $(5,068)  $(5,364)  $(6,721)
Income before provision for income taxes  $19,178   $26,356   $24,287   $27,976 
Provision for income taxes  $(6,544)  $(6,056)  $(7,913)  $(5,846)
Net income  $12,634   $20,300   $16,374   $22,130 
                     
Net income per share                    
Basic  $0.34   $0.55   $0.44   $0.60 
Diluted  $0.33   $0.53   $0.42   $0.57 
                     
2017                    
Net revenue  $106,562   $108,375   $106,562   $99,554 
Operating expenses  $73,640   $76,166   $75,960   $71,564 
Income from operations  $32,922   $32,209   $30,602   $27,990 
Interest expense, net of income  $(6,332)  $(5,551)  $(5,874)  $(4,858)
Income before provision for income taxes  $26,590   $26,658   $24,728   $23,132 
Provision for income taxes  $(11,425)  $(12,138)  $(11,320)  $(3,978)
Net income  $15,164   $14,521   $13,408   $19,154 
                     
Net income per share                    
Basic  $0.42   $0.40   $0.37   $0.52 
Diluted  $0.40   $0.38   $0.35   $0.50 

 

17.     SUBSEQUENT EVENTS

 

On January 18, 2019, the Board of Directors approved the Company’s common stock dividend, accounted for as a stock split. See Note 1 “General Information”.

 

On January 29, 2019, the Company entered into an agreement to acquire a subsidiary of Affinity Gaming (“Affinity”) that owns Affinity’s three casino properties located in Black Hawk, Colorado: Golden Gates, Golden Gulch and Mardi Gras. The transaction is expected to close in early 2020.

 

On March 26, 2019, the Company and its bank lenders entered into an incremental amendment to increase the revolving credit commitments under the Credit Facility from $100 million to $150 million.

 

On March 28, 2019, the Company completed its merger with Dover Downs. See Note 12 “Dover Downs Transaction.”

 

On March 29, 2019, the Company shares became listed on the New York Stock Exchange under the ticker symbol “TRWH.”

 

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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A.    CONTROLS AND PROCEDURES

 

Management’s Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the year ended December 31, 2018, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our chief executive officer and chief financial officer have concluded that during the period covered by this report, our disclosure controls and procedures were effective.

 

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Management's Report on Internal Control over Financial Reporting

 

This Annual Report does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.

 

Changes in Internal Control over Financial Reporting

 

There have been no significant changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B.    OTHER INFORMATION

 

None.

 

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PART III

 

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors and Executive Officers

 

The directors and executive officers are listed in the table below with a description of their experience and certain other information.

 

 

Name   Age*       Position    
George T. Papanier (4)   61   President and Chief Executive Officer, Director
Stephen H. Capp   56   Executive Vice President and Chief Financial Officer
John E. Taylor, Jr.   52   Executive Chairman, Director
Soohyung Kim (2)(3)   43   Director
Terrance Downey (1)(2)   63   Director

 

 

* Age as of April 1, 2019

 

(1) Member of the audit committee.

(2) Member of the compensation committee.

(3) Member of the nominating and governance committee.

(4) Member of the compliance committee.

 

George T. Papanier

 

Mr. Papanier has been the President and Chief Executive Officer of Twin River since 2011; served as director from 2011 to July 2012 and resumed the position in 2013. From 2004 to 2011, Mr. Papanier served as the Chief Operating Officer of Twin River. In 2009, Twin River filed for voluntary reorganization under the federal bankruptcy laws while Mr. Papanier was serving as Chief Operating Officer. Twin River emerged from the voluntary reorganization at the end of 2010. With more than 35 years of experience in the gaming industry and 14 years with Twin River, Mr. Papanier brings to Twin River and its board an in-depth understanding of Twin River, its strategy and strategic insights. Mr. Papanier is also a Certified Public Accountant.

 

Stephen H. Capp