0001747079-19-000074.txt : 20191114 0001747079-19-000074.hdr.sgml : 20191114 20191114164929 ACCESSION NUMBER: 0001747079-19-000074 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 86 CONFORMED PERIOD OF REPORT: 20190930 FILED AS OF DATE: 20191114 DATE AS OF CHANGE: 20191114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Twin River Worldwide Holdings, Inc. CENTRAL INDEX KEY: 0001747079 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 200904604 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38850 FILM NUMBER: 191221247 BUSINESS ADDRESS: STREET 1: 100 TWIN RIVER ROAD CITY: LINCOLN STATE: RI ZIP: 02865 BUSINESS PHONE: (401) 475-8474 MAIL ADDRESS: STREET 1: 100 TWIN RIVER ROAD CITY: LINCOLN STATE: RI ZIP: 02865 10-Q 1 trwh-2019930x10q.htm 10-Q Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-38850
trwhblueouta01.jpg
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 Westminster Street
Providence,
RI
02903
(Address of principal executive offices)
(Zip Code)
(401) 475-8474
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common stock, $0.01 par value
TRWH
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes       No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes       No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
 
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No  
As of October 31, 2019 there were 34,233,501 shares of the registrant’s common stock outstanding.
 




TWIN RIVER WORLDWIDE HOLDINGS, INC.

TABLE OF CONTENTS
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



PART I.
FINANCIAL INFORMATION
ITEM 1.     Financial Statements

TWIN RIVER WORLDWIDE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(In thousands, except share data)
 
September 30,
2019
 
December 31,
2018
Assets
 

 
 

Cash and cash equivalents
$
232,603

 
$
77,580

Restricted cash
2,056

 
3,851

Accounts receivable, net
22,525

 
22,966

Inventory
8,021

 
6,418

Prepaid expenses and other assets
24,840

 
11,647

Total current assets
290,045

 
122,462

Property and equipment, net
513,157

 
416,148

Right of use assets, net
17,473

 

Goodwill
132,805

 
132,035

Intangible assets, net
111,896

 
110,104

Other assets
5,542

 
1,603

Total assets
$
1,070,918

 
$
782,352

Liabilities and Shareholders’ Equity
 
 
 
Current portion of long-term debt
$
3,000

 
$
3,595

Current portion of lease obligations
1,009

 

Accounts payable
13,753

 
14,215

Accrued liabilities
79,129

 
57,778

Total current liabilities
96,891

 
75,588

Lease obligations, net of current portion
16,467

 

Pension benefit obligations
6,144

 

Deferred tax liability
5,647

 
17,526

Long-term debt, net of current portion
681,219

 
390,578

Other long-term liabilities
1,785

 

Total liabilities
808,153

 
483,692

Commitments and contingencies


 


Shareholders’ equity:
 
 
 
Common stock, par value $0.01; 100,000,000 shares authorized; 41,167,609 and 39,421,356 shares issued as of September 30, 2019 and December 31, 2018, respectively; 34,574,587 and 37,989,376 shares outstanding as of September 30, 2019 and December 31, 2018, respectively.
411

 
380

Additional paid in capital
184,953

 
125,629

Treasury stock, at cost, 6,593,022 and 1,431,980 shares as of September 30, 2019 and December 31, 2018, respectively.
(163,114
)
 
(30,233
)
Retained earnings
240,515

 
202,884

Total shareholders’ equity
262,765

 
298,660

Total liabilities and shareholders’ equity
$
1,070,918

 
$
782,352

See accompanying notes to condensed consolidated financial statements.

3



TWIN RIVER WORLDWIDE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited)
(In thousands, except per share data)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenue:
 

 
 

 
 

 
 
Gaming
$
88,315

 
$
82,067

 
$
279,417

 
$
243,915

Racing
3,255

 
3,286

 
9,978

 
10,440

Hotel
11,119

 
5,712

 
28,814

 
15,652

Food and beverage
18,054

 
12,129

 
50,366

 
35,915

Other
8,566

 
7,300

 
24,583

 
20,193

Total revenue
129,309

 
110,494

 
393,158

 
326,115

 
 
 
 
 
 
 
 
Operating costs and expenses:
 
 
 
 
 
 
 
Gaming
23,529

 
17,906

 
70,683

 
51,660

Racing
2,293

 
2,317

 
7,317

 
7,041

Hotel
4,190

 
2,098

 
11,087

 
5,914

Food and beverage
15,324

 
9,656

 
42,065

 
28,324

Retail, entertainment and other
2,252

 
1,892

 
5,703

 
4,476

Advertising, general and administrative
50,011

 
35,303

 
136,321

 
113,696

Expansion and pre-opening

 
2,139

 

 
2,624

Acquisition, integration and restructuring expense
1,930

 
3,680

 
11,047

 
4,344

Newport Grand disposal loss

 
656

 

 
6,541

Depreciation and amortization
8,329

 
5,196

 
23,331

 
15,543

Total operating costs and expenses
107,858

 
80,843

 
307,554

 
240,163

Income from operations
21,451

 
29,651

 
85,604

 
85,952

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Interest income
810

 
42

 
1,577

 
120

Interest expense, net of amounts capitalized
(11,461
)
 
(5,406
)
 
(28,478
)
 
(16,251
)
Loss on extinguishment and modification of debt

 

 
(1,491
)
 

Other, net
1

 

 
183

 

Total other expense, net
(10,650
)
 
(5,364
)
 
(28,209
)
 
(16,131
)
 
 
 
 
 
 
 
 
Income before provision for income taxes
10,801

 
24,287

 
57,395

 
69,821

 
 
 
 
 
 
 
 
Provision for income taxes
3,802

 
7,913

 
15,620

 
20,513

Net income
$
6,999

 
$
16,374

 
$
41,775

 
$
49,308

Deemed dividends related to changes in fair value of common stock subject to possible redemption

 
1,036

 

 
(1,574
)
Net income applicable to common stockholders
$
6,999

 
$
17,410

 
$
41,775

 
$
47,734

 
 
 
 
 
 
 
 
Net income per share, basic
$
0.19

 
$
0.47

 
$
1.07

 
$
1.29

Weighted average common shares outstanding, basic
37,809

 
36,925

 
39,063

 
36,891

Net income per share, diluted
$
0.18

 
$
0.45

 
$
1.07

 
$
1.21

Weighted average common shares outstanding, diluted
37,925

 
38,575

 
39,183

 
39,338

Note: Net income equals comprehensive income for all the periods presented.
See accompanying notes to condensed consolidated financial statements.

4



TWIN RIVER WORLDWIDE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)
(In thousands, except share data)
 
Common Stock
 
Additional
Paid-in Capital
 
Treasury
Stock
 
Retained
Earnings
 
Total Shareholders’
Equity
 
Shares Outstanding
 
Amount
 
 
 
 
Balance as of December 31, 2018
37,989,376

 
$
380

 
$
125,629

 
$
(30,233
)
 
$
202,884

 
$
298,660

Release of restricted stock
161,980

 
1

 

 

 

 
1

Share-based compensation - equity awards

 

 
151

 

 

 
151

Retirement of treasury shares

 

 
(30,233
)
 
30,233

 

 

Share repurchases
(16,340
)
 

 

 
(409
)
 

 
(409
)
Stock issued for purchase of Dover Downs
2,976,825

 
30

 
86,750

 

 

 
86,780

Net income

 

 

 

 
17,596

 
17,596

Balance as of March 31, 2019
41,111,841

 
$
411

 
$
182,297

 
$
(409
)
 
$
220,480

 
$
402,779

Release of restricted stock
35,756

 

 

 

 

 

Dividends - $0.10 per share

 

 

 

 
(4,144
)
 
(4,144
)
Share-based compensation - equity awards

 

 
1,628

 

 

 
1,628

Net income

 

 

 

 
17,180

 
17,180

Balance as of June 30, 2019
41,147,597

 
411

 
183,925

 
(409
)
 
233,516

 
417,443

Share-based compensation - equity awards

 

 
1,028

 

 

 
1,028

Release of restricted stock
3,672

 

 

 

 

 

Share repurchases (including tender offer)
(6,576,682
)
 

 

 
(162,705
)
 

 
(162,705
)
Net income

 

 

 

 
6,999

 
6,999

Balance as of September 30, 2019
34,574,587

 
$
411

 
$
184,953

 
$
(163,114
)
 
$
240,515

 
$
262,765

 
Common Stock
 
Additional
Paid-in Capital
 
Treasury
Stock
 
Retained
Earnings
 
Total Shareholders’
Equity
 
Shares Outstanding
 
Amount
 
 
 
 
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
368,000

 
4

 
9,016

 

 

 
9,020

Share-based compensation - equity awards

 

 
506

 

 

 
506

Release of restricted stock
25,136

 

 

 

 

 

Common stock subject to possible redemption
(25,136
)
 

 
(685
)
 

 

 
(685
)
Deemed dividends related to changes in fair value of common stock subject to possible redemption

 

 

 

 
(1,305
)
 
(1,305
)
Net income

 

 

 

 
12,634

 
12,634

Balance as of March 31, 2018
36,567,704

 
$
366

 
$
76,747

 
$
(22,275
)
 
$
142,135

 
$
196,973

Share-based compensation - equity awards

 

 
504

 

 

 
504

Deemed dividend related to changes in fair value of common stock subject to possible redemption

 

 

 

 
(1,305
)
 
(1,305
)
Net income

 

 

 

 
20,300

 
20,300

Balance as of June 30, 2018
36,567,704

 
366

 
77,251

 
(22,275
)
 
161,130

 
216,472

Share-based compensation - equity awards

 

 
689

 

 

 
689

Deemed dividends related to changes in fair value of common stock subject to possible redemption

 

 

 

 
1,036

 
1,036

Net income

 

 

 

 
16,374

 
16,374

Balance as of September 30, 2018
36,567,704

 
$
366

 
$
77,940

 
$
(22,275
)
 
$
178,540

 
$
234,571

See accompanying notes to condensed consolidated financial statements.

5



TWIN RIVER WORLDWIDE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In thousands)
 
Nine Months Ended September 30,
 
2019
 
2018
Cash flows from operating activities:
 

 
 

Net income
$
41,775

 
$
49,308

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation of property and equipment
18,920

 
11,438

Amortization of intangible assets
4,411

 
4,105

Amortization of operating lease right of use assets
966

 

Share-based compensation - liability awards

 
5,652

Share-based compensation - equity awards
2,807

 
1,699

Amortization of debt financial costs and discounts on debt
1,976

 
2,480

Loss on debt extinguishment and modification of debt
1,491

 

Bad debt expense
135

 
182

Net pension and other postretirement benefit income
(39
)
 

Deferred income taxes

 
2,649

Newport Grand disposal loss

 
6,541

Gain on disposal of property and equipment
(5
)
 

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
5,980

 
(7,133
)
Inventory
(210
)
 
1,345

Prepaid expenses and other assets
(7,834
)
 
(2,422
)
Accounts payable
(5,439
)
 
1,066

Accrued liabilities
7,768

 
5,135

Net cash provided by operating activities
72,702

 
82,045

Cash flows from investing activities:
 
 
 
Deposit paid

 
(981
)
Repayment of loans from officers and directors

 
1,073

Acquisition of Dover Downs Gaming & Entertainment, Inc., net of cash acquired
(9,606
)
 

Proceeds from sale of land and building for Newport Grand disposal

 
7,108

Proceeds from sale of property and equipment
7

 
5

Capital expenditures, excluding Tiverton Casino Hotel and new hotel at Twin River Casino
(17,645
)
 
(5,107
)
Capital expenditures - Tiverton Casino Hotel
(1,824
)
 
(79,010
)
Capital expenditures - new hotel at Twin River Casino
(3,765
)
 
(20,781
)
Payments associated with licenses
(1,092
)
 
(209
)
Net cash used in investing activities
(33,925
)
 
(97,902
)
Cash flows from financing activities:
 
 
 
Revolver borrowings
25,000

 
41,000

Revolver repayments
(80,000
)
 

Term loan proceeds, net of fees of $10,655
289,345

 

Term loan repayments
(343,189
)
 
(33,327
)
Senior note proceeds, net of fees of $6,130
393,870

 

Payment of financing fees
(3,352
)
 

Share repurchases (including tender offer)
(163,114
)
 

Stock options exercised via repayment of non-recourse notes

 
890

Payment of shareholder dividends
(4,109
)
 

Net cash provided by financing activities
114,451

 
8,563

 
 
 
 
Net change in cash and cash equivalents and restricted cash
153,228

 
(7,294
)
Cash and cash equivalents and restricted cash, beginning of period
81,431

 
93,216

Cash and cash equivalents and restricted cash, end of period
$
234,659

 
$
85,922

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest
$
16,069

 
$
17,005

Cash paid for income taxes
12,843

 
17,017

 
 
 
 
Non-cash investing and financing activities:
 
 
 
Unpaid property and equipment
$
498

 
$
24,219

Deposit applied to fixed asset purchases
981

 

Deemed dividends related to changes in fair value of common stock subject to possible redemption

 
1,574

Intrinsic value of stock options exercised via repayment of non-recourse notes

 
8,130

Termination of operating leases via purchase of underlying assets
1,665

 

Stock issued for acquisition of Dover Downs Gaming & Entertainment, Inc.
86,780

 

See accompanying notes to condensed consolidated financial statements.

6

TWIN RIVER WORLDWIDE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



1.    SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Twin River Worldwide Holdings, Inc. (the “Company”, “TRWH”) is a diverse, multi-jurisdictional owner and operator of gaming and racing facilities, including slot machines and various casino table games. The Company, through its wholly owned subsidiary Twin River Management Group, Inc. (“TRMG”), owns and manages the Twin River Casino Hotel (“Twin River Casino Hotel”) in Lincoln, Rhode Island, the Tiverton Casino Hotel (“Tiverton Casino Hotel”) in Tiverton, Rhode Island, the Hard Rock Hotel & Casino (“Hard Rock Biloxi”) in Biloxi, Mississippi, the Dover Downs Hotel & Casino (“Dover Downs Casino Hotel”) in Dover, Delaware, and the Arapahoe Park racetrack and Havana Park off-track betting (“Mile High USA”) in Aurora, Colorado. Following the closure of the Newport Grand Casino (“Newport Grand”) in August 2018, we opened the Tiverton Casino Hotel on September 1, 2018. On March 28, 2019, we completed our acquisition of Dover Downs Gaming & Entertainment, Inc., which consisted of Dover Downs Casino Hotel (collectively, “Dover Downs”). On January 29, 2019, the Company entered into an agreement to acquire the operations and real estate of three casino properties in Black Hawk, Colorado and on July 10, 2019 the Company entered into an agreement to acquire the operations and real estate of Isle of Capri Casino Kansas City in Kansas City, Missouri (“Isle Kansas City”) and Lady Luck Casino Vicksburg in Vicksburg, Mississippi (“Lady Luck Vicksburg”). See Note 4. “Acquisitions” for further information.
On March 29, 2019, the Company’s common stock was listed on the New York Stock Exchange and began trading under the ticker symbol “TRWH.”
Principles of Consolidation
The accompanying condensed consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiary TRMG and its subsidiaries. All intercompany transactions and balances have been eliminated in the consolidation. Certain prior year amounts have been reclassified to conform to the current year’s presentation.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information, including the instructions to Form 10-Q and Rule 10-01 of the SEC’s Regulation S-X. Accordingly, certain information and note disclosures normally required in complete financial statements prepared in conformity with accounting principles generally accepted in the United States have been condensed or omitted. In the Company’s opinion, these condensed consolidated financial statements include all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. However, the results of operations for interim periods may not be indicative of the results that may be expected for a full year or any future period. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Except as described below and in the Notes to the condensed consolidated financial statements, there were no material changes in significant accounting policies from those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
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 and cash equivalents.
As of September 30, 2019 and December 31, 2018, restricted cash of $2.1 million and $3.9 million, respectively, was comprised of video lottery terminal (“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 condensed consolidated balance sheets to the total shown on the condensed consolidated statements of cash flows.
 
September 30,
 
December 31,
(in thousands)
2019
 
2018
Cash and cash equivalents
$
232,603

 
$
77,580

Restricted cash
2,056

 
3,851

Total cash and cash equivalents and restricted cash
$
234,659

 
$
81,431



7

TWIN RIVER WORLDWIDE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


Treasury Stock
The Company records the repurchase of shares of common stock at cost based on the settlement date of the transaction. Upon settlement, these shares are classified as treasury stock, which is a reduction to shareholders’ equity. Treasury stock is included in authorized and issued shares but excluded from outstanding shares.
Fair Value Measurements
Fair value is determined using the principles of Financial Accounting Standards Board (“FASB”) Codification Topic 820, Fair Value Measurement (“ASC 820”). 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.
Level 3: Unobservable inputs.
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 within Level 2 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 three and nine months ended September 30, 2019.

Leases
Effective January 1, 2019, the Company accounts for its leases under FASB Codification Topic 842, Leases (“ASC 842”). Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the condensed consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Discount rates used to determine the present value of the lease payments are based on a credit-adjusted secured borrowing rate commensurate with the term of the lease. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.
In calculating the right of use asset and lease liability, the Company accounts for both the lease component and the non-lease component as a single component for all classes of underlying assets. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.
The Company also has leasing arrangements with third-party lessees at its properties. Leasing arrangements for which the Company acts as a lessor are not deemed to be material as of September 30, 2019.
The Company continues to account for leases in the prior period financial statements under ASC 840. See Note 9. “Leases” for further discussion.


8

TWIN RIVER WORLDWIDE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


Change in Accounting Principle

In the second quarter of 2019, the Company changed its accounting principle for reporting share-based compensation expense in the condensed consolidated statements of operations per FASB Codification Topic 718, Compensation - Stock Compensation (“ASC 718”). The new principle is to record compensation expense for share-based compensation awards which contain only a service condition, i.e. time-based awards, using the straight-line method of accounting recognizing compensation expense over the requisite service period and treating all tranches as one award. The Company previously recorded share-based compensation expense for awards with graded vesting over the requisite service period on an accelerated basis, as if each tranche were a separate award. The straight-line method of accounting was adopted to better align the Company’s recognition of share-based compensation expense with its peers and to expense restricted stock units in a consistent manner that is representative of the requisite service period. This change in accounting principle was retrospectively applied, but had an immaterial effect on the condensed consolidated balance sheets, condensed consolidated statements of operations, condensed consolidated statements of shareholders’ equity, and condensed consolidated statements of cash flows. As a result of this change in accounting principle, share-based compensation expense was reduced by $0.2 million and $0.3 million for the three and nine months ended September 30, 2019, respectively. Net income for the three and nine months ended September 30, 2019 increased by approximately $0.1 million and $0.2 million, respectively, with an immaterial impact to diluted earnings per share amounts.


2.    RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (“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 United States Generally Accepted Accounting Principles (“US GAAP”). For public companies, ASU 2016-02 was effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods, which for the Company was the first quarter of 2019) 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 carry-forward accounting conclusions under previous US 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 ASC 842 as of the adoption date, rather than as of the earliest period presented. The Company adopted ASC 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 entire package of practical expedients described above. Based on the analysis, on January 1, 2019, the Company recorded right of use assets and a corresponding lease liability of approximately $18.8 million. There was no impact to opening retained earnings.

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 was the first quarter of 2019. The Company adopted this ASU in the first quarter of 2019, with no impact to its condensed consolidated financial statements.

9

TWIN RIVER WORLDWIDE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments–Credit Losses (Topic 326)–Measurement of Credit Losses on Financial Instruments (“ASC 326”). 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. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments–Credit Losses, to clarify that receivables arising from operating leases are not within the scope of ASC 326 and should instead, be accounted for in accordance with ASC 842, Leases. 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 Company anticipates adopting this standard in the first quarter of 2020. 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 2018, the FASB issued ASU No 2018-14, Compensation–Retirement Benefits–Defined Benefit Plans–General. This amendment improves disclosures over defined benefit plans and is effective for interim and annual periods ending after December 15, 2020 with early adoption allowed. The Company anticipates adopting this amendment during the first quarter of 2021 and does not expect it to have a significant impact on the condensed 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 anticipates adopting this amendment in the first quarter of 2020, and does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements.
3.    REVENUE RECOGNITION

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

Gaming revenue includes the share of VLT revenue for Twin River Casino Hotel, Tiverton Casino Hotel (upon its opening on September 1, 2018) and Newport Grand (until its closing on August 28, 2018), in each case, as determined by each property’s 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 of VLT revenue generated from units in excess of 3,002 units. 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. Twin River Casino Hotel and Tiverton Casino Hotel each were entitled to an 83.5% share of table games revenue as of September 30, 2019. 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 from its Rhode Island operations on a net basis which is the percentage share of VLT and table games revenue received as the Company acts as an agent in operating the gaming services on behalf of the State of Rhode Island.


10

TWIN RIVER WORLDWIDE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


Gaming revenue also includes Dover Downs’ share of revenue as determined under the Delaware State Lottery Code from the date of its acquisition. Dover Downs is authorized to conduct video lottery, sports wagering, table game and internet gaming operations as one of three “Licensed Agents” under the Delaware State Lottery Code. Licensing, administration and control of gaming operations in Delaware is under the Delaware State Lottery Office and Delaware’s Department of Safety and Homeland Security, Division of Gaming Enforcement. As of September 30, 2019, Dover Downs was entitled to an approximately 42% share of VLT revenue and an 80% share of table games revenue. 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 from its Delaware operations on a net basis, which is the percentage share of VLT and table games revenue received, as the Company acts as an agent in operating the gaming services on behalf of the State of Delaware.

Gaming revenue also includes the casino revenue of Hard Rock Biloxi, 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 condensed consolidated financial statements of applying the revenue recognition guidance to the portfolio to not differ materially from that which would result if applying the guidance to an individual wagering contract. 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 incentive earned for a hotel room stay, food and beverage or other amenity. 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.

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 three and nine months ended September 30, 2019 and 2018:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Hotel
$
5,594

 
$
2,945

 
$
14,528

 
$
8,270

Food and beverage
8,940

 
5,908

 
22,488

 
17,465

Other
1,910

 
1,656

 
5,071

 
4,234

 
$
16,444

 
$
10,509

 
$
42,087

 
$
29,969


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), Mile High USA’s and Dover Downs’ 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 revenue or operating expenses.

11

TWIN RIVER WORLDWIDE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


The following tables provide a disaggregation of revenue by segment:
(in thousands)
Rhode Island
 
Delaware
 
Biloxi
 
Other
 
Total
Three Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
Gaming
$
52,477

 
$
14,594

 
$
21,244

 
$

 
$
88,315

Racing
714

 
181

 

 
2,360

 
3,255

Hotel
1,781

 
4,036

 
5,302

 

 
11,119

Food and beverage
7,433

 
5,915

 
4,702

 
4

 
18,054

Other
5,437

 
1,167

 
1,847

 
115

 
8,566

Total revenue
$
67,842

 
$
25,893

 
$
33,095

 
$
2,479

 
$
129,309

 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
Gaming
$
61,209

 
n/a

 
$
20,858

 
$

 
$
82,067

Racing
900

 
n/a

 

 
2,386

 
3,286

Hotel
109

 
n/a

 
5,603

 

 
5,712

Food and beverage
6,928

 
n/a

 
5,198

 
3

 
12,129

Other
5,633

 
n/a

 
1,542

 
125

 
7,300

Total revenue
$
74,779

 
n/a

 
$
33,201

 
$
2,514

 
$
110,494


Nine Months Ended September 30, 2019
Rhode Island
 
Delaware
 
Biloxi
 
Other
 
Total
Gaming
$
186,888

 
$
29,469

 
$
63,060

 
$

 
$
279,417

Racing
2,861

 
460

 

 
6,657

 
9,978

Hotel
5,016

 
8,372

 
15,426

 

 
28,814

Food and beverage
24,833

 
12,604

 
12,923

 
6

 
50,366

Other
17,225

 
2,264

 
4,836

 
258

 
24,583

Total revenue
$
236,823

 
$
53,169

 
$
96,245

 
$
6,921

 
$
393,158

 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
Gaming
$
182,567

 
n/a

 
$
61,348

 
$

 
$
243,915

Racing
2,883

 
n/a

 

 
7,557

 
10,440

Hotel
109

 
n/a

 
15,543

 

 
15,652

Food and beverage
21,599

 
n/a

 
14,312

 
4

 
35,915

Other
15,930

 
n/a

 
4,022

 
241

 
20,193

Total revenue
$
223,088

 
n/a

 
$
95,225

 
$
7,802

 
$
326,115


Revenue included in operations from Dover Downs from the date of its acquisition, March 28, 2019, through September 30, 2019 is reported in the “Delaware” segment. Refer to Note 4. “Acquisitions” for further information.

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 off track betting (“OTB”) locations. The Company’s receivables related to contracts with customers were $12.8 million and $13.3 million as of September 30, 2019 and December 31, 2018, 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 of these incentives outstanding at the end of a period will either be redeemed or expire within the next twelve months. The Company’s contract liabilities related to loyalty programs were $12.0 million and $9.5 million as of September 30, 2019 and December 31, 2018, respectively, and are included as accrued liabilities in the condensed consolidated balance sheets. The Company recognized $2.7 million and $2.1 million of revenue related to loyalty program redemptions for the three months ended September 30, 2019 and 2018, respectively, and $7.3 million and $6.1 million for the nine months ended September 30, 2019 and 2018, respectively.


12

TWIN RIVER WORLDWIDE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


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 $1.8 million and $0.6 million as of September 30, 2019 and December 31, 2018, respectively, and are included as accrued liabilities in the condensed consolidated balance sheets.

Unpaid wagers include unpaid pari-mutuel tickets and unpaid sports bet tickets. Unpaid pari-mutual 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 wagers were $1.1 million and $0.9 million as of September 30, 2019 and December 31, 2018, respectively, and are included as accrued liabilities in the condensed consolidated balance sheets.

ASC 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.

4.
ACQUISITIONS

Dover Downs Gaming & Entertainment, Inc.

On July 22, 2018, the Company entered into a merger agreement with Dover Downs pursuant to which, among other things, on March 28, 2019, a subsidiary of the Company merged with and into Dover Downs with Dover Downs becoming an indirect wholly-owned subsidiary of the Company. The merger resulted in Dover Downs’ shareholders exchanging their Dover Downs stock for Company common shares representing 7.225% of the outstanding shares of common stock in the combined company at closing. A total of 2,976,825 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.
(in thousands, except share and per share data)
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 Dover Downs stock purchased *
$
86,790

Cash paid by the Company at closing, including amounts to retire Dover Downs debt, inclusive of accrued interest
$
29,096

Consideration transferred
$
115,886

 
 
*Shares issued at approximately $29.15 per share when considering the fair value of stock purchased and number of Company shares issued in conjunction with the acquisition.

The total consideration paid by the Company in connection with the Dover Downs acquisition was approximately $115.9 million, or $96.4 million, net of cash acquired of $19.5 million. This preliminary purchase price excludes transaction costs. During the three and nine months ended September 30, 2019, the Company incurred $0.4 million and $7.6 million, respectively, of transaction costs related to the merger and becoming a publicly traded company, compared to $3.7 million and $4.3 million, respectively, during the three and nine months ended September 30, 2018. These costs are included in acquisition, integration and restructuring expense in the condensed consolidated statements of operations and comprehensive income.

The identifiable intangible assets recorded in connection with the closing of the merger based on preliminary valuations include trademarks of $3.9 million, rated player relationships of $0.8 million and hotel and conference pre-bookings of $0.4 million, which are being amortized on a straight-line basis over estimated useful lives of approximately ten years, eight years, and three years, respectively. The preliminary fair value of the identifiable intangible assets acquired was determined by using an income approach. Significant assumptions utilized in the income approach were based on company-specific information and projections, which are not observable in the market and are thus considered Level 3 measurements as defined by authoritative guidance.

The Company accounted for the acquisition as a business combination using the acquisition method with Twin River as the accounting acquirer in accordance with FASB Codification Topic 805, Business Combinations (“ASC 805”). Under this method of accounting the purchase price has been allocated to Dover Downs’ assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date.


13

TWIN RIVER WORLDWIDE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


The following table summarizes the consideration paid and the preliminary fair values of the assets acquired and liabilities assumed. The Company has recorded adjustments to the preliminary opening balance sheet, as reflected in the table below, as a result of valuation procedures performed on balance sheet amounts. As of September 30, 2019, the purchase price allocation was preliminary and will be finalized when valuations are complete and final assessments of the fair value of other acquired assets and assumed liabilities are completed. There can be no assurance that such finalizations will not result in material changes from the preliminary purchase price allocations. The Company’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date), as the Company finalizes the valuations of certain tangible and intangible assets acquired and liabilities assumed. Goodwill was $0.8 million at September 30, 2019. While the Company is still completing the final purchase accounting adjustments, material changes are not expected to the amounts recorded in the condensed consolidated financial statements as of September 30, 2019.
 
As of March 28, 2019
(in thousands)
Preliminary as of March 31, 2019
Year to Date Adjustments
Preliminary as of September 30, 2019
Cash
$
19,500

$