The accompanying condensed notes are an integral part of these consolidated financial statements.
The accompanying condensed notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying condensed notes are an integral part of these consolidated financial statements.
Condensed Notes to Consolidated Financial Statements (Unaudited)
Note 1 – Nature of Business and Basis of Presentation
Overview
Golden Entertainment, Inc. and its wholly-owned subsidiaries (collectively, the “Company”) own and operate a diversified entertainment platform, consisting of a portfolio of gaming assets that focus on resort casino operations and distributed gaming (including gaming in the Company’s branded taverns).
The Company conducts its business through two reportable operating segments: Casinos and Distributed Gaming. The Company’s Casinos segment involves the operation of ten resort casino properties in Nevada and Maryland, comprising:
The STRAT Hotel, Casino & SkyPod ("The Strat")
|
|
Las Vegas, Nevada
|
Arizona Charlie's Decatur
|
|
Las Vegas, Nevada
|
Arizona Charlie's Boulder
|
|
Las Vegas, Nevada
|
Aquarius Casino Resort ("Aquarius")
|
|
Laughlin, Nevada
|
Edgewater Hotel & Casino Resort ("Edgewater")
|
|
Laughlin, Nevada
|
Colorado Belle Hotel & Casino Resort ("Colorado Belle")
|
|
Laughlin, Nevada
|
Pahrump Nugget Hotel Casino ("Pahrump Nugget")
|
|
Pahrump, Nevada
|
Gold Town Casino
|
|
Pahrump, Nevada
|
Lakeside Casino & RV Park
|
|
Pahrump, Nevada
|
Rocky Gap Casino Resort ("Rocky Gap")
|
|
Flintstone, Maryland
|
The Company’s Distributed Gaming segment involves the installation, maintenance and operation of slots and amusement devices in non-casino locations such as restaurants, bars, taverns, convenience stores, liquor stores and grocery stores in Nevada and Montana, and the operation of branded taverns targeting local patrons located primarily in the greater Las Vegas, Nevada metropolitan area.
Basis of Presentation
The unaudited consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. Accordingly, certain information normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) has been condensed and/or omitted. For further information, please refer to the audited consolidated financial statements of the Company for the year ended December 31, 2018 and the notes thereto included in the Company’s Annual Report on Form 10-K previously filed with the SEC. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s results for the periods presented. Results for interim periods should not be considered indicative of the results to be expected for the full year.
The accompanying unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Certain amounts in the consolidated financial statements for the previous year period have been reclassified to be consistent with current year presentation. These reclassifications had no effect on previously reported net income.
Lessee Arrangements
The Company is the lessee under non-cancelable real estate leases, equipment leases and space lease agreements. Beginning on January 1, 2019 (the date of the Company's adoption of Topic 842, as defined and discussed further in “Accounting Standards Issued and Adopted”, below), operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date and initially measured based on the present value of lease payments over the defined lease term. The Company’s lease terms may include options to extend or terminate the lease. The Company assesses these options using a threshold of reasonably certain. For leases where the Company is reasonably certain to renew, those option periods are included within the lease term and, therefore, the measurement of the right-of-use asset and lease liability. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company’s lease agreements do not contain any material residual value guarantees, restrictions or covenants.
7
The Company’s lease agreements for land, buildings and taverns with lease and non-lease components are accounted for separately. The lease and non-lease components of certain vehicle and equipment leases are accounted for as a single lease component. Additionally, for certain vehicle and equipment leases, a portfolio approach is utilized to effectively account for the operating lease ROU assets and liabilities.
As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate is estimated based on the information available at the commencement date in determining the present value of lease payments. The implicit rate will be used when readily determinable. The operating lease ROU assets also includes any lease payments made and excludes lease incentives. The Company does not record an asset or liability for operating leases with a term of less than one year. Prior to the adoption of Topic 842 on January 1, 2019, the Company did not record an asset or liability for any of its operating leases.
Lessor Arrangements
The Company is the lessor under non-cancelable operating leases for retail and food and beverage outlet space within its resort casino properties. The lease arrangements generally include minimum base rent and/or contingent rental clauses based on a percentage of net sales exceeding minimum base rent. Generally, the terms of the leases range between five and 10 years, with options to extend the leases. The Company records revenue on a straight-line basis over the term of the lease, and recognizes revenue for contingent rentals when the contingency has been resolved. The Company has elected to combine lease and non-lease components for the purpose of measuring lease revenue. Revenue is recorded in other operating revenue on the consolidated statements of operations.
Net Income Per Share
For all periods, basic net income per share is calculated by dividing net income by the weighted-average common shares outstanding. Diluted net income per share in profitable periods reflects the effect of all potentially dilutive common shares outstanding by dividing net income by the weighted-average of all common and potentially dilutive shares outstanding. Due to the net losses for the three months ended September 30, 2019 and 2018 and nine months ended September 30, 2019, the effect of all potential common share equivalents was anti-dilutive, and therefore all such shares were excluded from the computation of diluted weighted average shares outstanding for both periods. The amount of potential common share equivalents were 730,282 and 1,870,290 for three months ended September 30, 2019 and 2018, respectively. The amount of potential common share equivalents were 842,142 for nine months ended September 30, 2019.
Accounting Standards Issued and Adopted
The Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (“Topic 842”), as amended, as of January 1, 2019, and elected the option to apply the transition requirements in the new standard at the effective date of January 1, 2019 with the effects of initially applying Topic 842 recognized as a cumulative-effect adjustment to retained earnings on January 1, 2019. As a result, the balance sheet presentation is not comparable to the prior period in this first year of adoption.
The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allows the carry forward of the Company’s Leases – Topic 840 assessment regarding definition of a lease, lease classification, and initial direct costs. The Company also elected the short-term lease exception, which allows leases with a lease term of 12 months or less to be accounted for similar to existing operating leases. The Company elected not to separate non-lease components from lease components and, instead, to account for each separate lease component and the non-lease components associated with it as a single lease component, recognized on the balance sheet. The Company did not elect the use-of-hindsight, which requires an entity to use hindsight in determining the lease term and in assessing impairment of right-of-use assets, or the practical expedient pertaining to land easements, which is not applicable.
The standard did not materially impact the Company’s consolidated net earnings and had no impact on cash flows. The effect of adopting Topic 842 on the January 1, 2019 consolidated balance sheet is as follows:
(In thousands)
|
|
Prior to Adoption
|
|
|
Effect of Adoption(1)
|
|
|
Post Adoption
|
|
Prepaid expenses
|
|
$
|
17,722
|
|
|
$
|
(194
|
)
|
|
$
|
17,528
|
|
Property and equipment, net
|
|
|
894,953
|
|
|
|
2,503
|
|
|
|
897,456
|
|
Operating lease right-of-use assets, net
|
|
|
—
|
|
|
|
140,715
|
|
|
|
140,715
|
|
Intangible assets, net
|
|
|
141,128
|
|
|
|
(2,503
|
)
|
|
|
138,625
|
|
Operating lease liability
|
|
|
—
|
|
|
|
155,878
|
|
|
|
155,878
|
|
Other long-term obligations
|
|
|
4,801
|
|
|
|
(3,085
|
)
|
|
|
1,716
|
|
Accumulated deficit
|
|
|
(120,361
|
)
|
|
|
(12,272
|
)
|
|
|
(132,633
|
)
|
(1)
|
Prepaid expenses, favorable lease intangible and deferred lease expense included in other long-term obligations were reclassed to the related right-of-use asset upon adoption of Topic 842 and represents a non-cash investing activity.
|
In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-07, Compensation – Stock Compensation, which expands previous guidance to include all share-based payment arrangements related to the acquisition of goods and services
8
from both non-employees and employees. The Company adopted the standard as of January 1, 2019, and the adoption did not have a material impact on the Company’s financial statements and disclosures.
Accounting Standards Issued but Not Yet Adopted
See Note 2, Summary of Significant Accounting Policies, to the Company’s audited consolidated financial statements for the year ended December 31, 2018 for a discussion of accounting standards issued but not yet adopted. No other recently issued accounting standards that are not yet effective have been identified that management believes are likely to have a material impact on the Company’s financial statements.
Note 2 – Acquisitions
Laughlin Acquisition
Overview
On January 14, 2019, the Company completed the acquisition of Edgewater Gaming, LLC and Colorado Belle Gaming, LLC (the “Acquired Entities”) from Marnell Gaming, LLC (“Marnell”) for $156.2 million in cash (after giving effect to the post-closing adjustment provisions in the purchase agreement) and the issuance of 911,002 shares of the Company’s common stock to certain assignees of Marnell (the “Acquisition”). The results of operations of the Acquired Entities are included in the Company’s results subsequent to the acquisition date.
In connection with the Acquisition, the Company borrowed $145.0 million under its revolving credit facility.
Purchase Price
The Acquisition has been accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification 805, Business Combinations (“ASC 805”), which, among other things, establishes that equity issued to effect the acquisition be measured at the closing date of the transaction at the then-current market price. Accordingly, the fair value of the Company's common stock issued was based on the closing price of the Company's common stock on January 14, 2019 of $18.23.
The following is a summary of the components of the purchase price paid by the Company to Marnell in the Acquisition (after taking into account the adjustment to the cash portion of the purchase price pursuant to the post-closing adjustment provisions of the purchase agreement, as described above):
(In thousands)
|
|
Amount
|
|
Cash
|
|
$
|
156,152
|
|
Fair value of common stock issued (911,002 shares)
|
|
|
16,608
|
|
Total purchase price
|
|
$
|
172,760
|
|
Purchase Price Allocation
Under ASC 805, the purchase price of the acquisition is allocated to the identified tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date which are determined in accordance with the applicable accounting guidance for business combinations and with the services of third-party valuation consultants. The excess of the purchase price over the fair values is recorded as goodwill which is expected to be deductible for tax purposes.
During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill. Balances subject to adjustment primarily include current assets, property and equipment, intangible assets, liabilities, as well as tax-related matters, including tax basis of acquired assets and liabilities.
The following table summarizes the preliminary allocation of the purchase price:
(In thousands)
|
|
|
|
|
Current assets
|
|
$
|
12,615
|
|
Property and equipment
|
|
|
126,198
|
|
Right-of-use assets
|
|
|
2,620
|
|
Intangible assets
|
|
|
19,234
|
|
Goodwill
|
|
|
24,736
|
|
Liabilities
|
|
|
(10,023
|
)
|
Lease liabilities
|
|
|
(2,620
|
)
|
Total assets acquired, net of liabilities assumed
|
|
$
|
172,760
|
|
9
The following table summarizes the preliminary amounts assigned to property and equipment and estimated useful life by category:
(In thousands)
|
|
Useful Life (Years)
|
|
|
|
|
Land
|
|
Not applicable
|
|
$
|
4,160
|
|
Building and site improvements
|
|
10-30
|
|
|
102,450
|
|
Furniture and equipment
|
|
2-13
|
|
|
18,185
|
|
Construction in process
|
|
Not applicable
|
|
|
1,403
|
|
Total property and equipment
|
|
|
|
$
|
126,198
|
|
The following table summarizes the preliminary values assigned to acquired intangible assets and estimated useful lives by category:
(In thousands)
|
|
Useful Life (Years)
|
|
|
|
|
Non-compete agreements
|
|
5
|
|
$
|
3,630
|
|
Trade names
|
|
Indefinite
|
|
|
6,980
|
|
Player loyalty program
|
|
2
|
|
|
8,600
|
|
Other
|
|
4
|
|
|
24
|
|
Total intangible assets
|
|
|
|
$
|
19,234
|
|
Pro Forma Combined Financial Information
The following unaudited pro forma combined financial information has been prepared by management for illustrative purposes only and does not purport to represent what the results of operations, financial condition or other financial information of the Company would have been if the Acquisition had occurred on January 1, 2018, or what such results or financial condition will be for any future periods. The unaudited pro forma combined financial information is based on preliminary estimates and assumptions and on the information available at the time of the preparation thereof. These preliminary estimates and assumptions may change, be revised or prove to be materially different, and the estimates and assumptions may not be representative of facts existing at the time of the Acquisition. The unaudited pro forma combined financial information does not reflect non-recurring charges that were incurred in connection with the Acquisition, nor any cost savings and synergies expected to result from the Acquisition (and associated costs to achieve such savings or synergies), nor any costs associated with severance, restructuring or integration activities resulting from the Acquisition.
The following table summarizes certain unaudited pro forma combined financial information derived from a combination of the historical consolidated financial statements of the Company and of the Acquired Entities for the three and nine months ended September 30, 2018, adjusted to give effect to the Acquisition, related transactions, and the adoption of ASC 606 for the Acquired Entities.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(In thousands, except per share data)
|
|
September 30, 2018
|
|
|
September 30, 2018
|
|
Pro forma combined revenues
|
|
$
|
233,102
|
|
|
$
|
713,807
|
|
Pro forma combined net income (loss)
|
|
|
(1,453
|
)
|
|
|
6,066
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
28,566
|
|
|
|
28,316
|
|
Diluted
|
|
|
28,566
|
|
|
|
30,103
|
|
Pro forma combined net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.05
|
)
|
|
$
|
0.21
|
|
Diluted
|
|
|
(0.05
|
)
|
|
|
0.20
|
|
In connection with the Acquisition, the Company incurred approximately $0.3 million and $1.6 million of acquisition costs during the three and nine months ended September 30, 2019, respectively. For the three and nine months ended September 30, 2019, the Acquired Entities contributed revenue of approximately $23.7 million and $70.4 million, respectively. For the three and nine months ended September 30, 2019, operating expenses related to the Acquired Entities were approximately $12.0 million and $37.0 million, respectively.
10
Note 3 – Property and Equipment, Net
Property and equipment, net, consisted of the following:
(In thousands)
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
Land
|
|
$
|
125,240
|
|
|
$
|
121,081
|
|
Building and site improvements
|
|
|
863,827
|
|
|
|
723,354
|
|
Furniture and equipment
|
|
|
203,062
|
|
|
|
154,663
|
|
Construction in process
|
|
|
54,876
|
|
|
|
35,151
|
|
Property and equipment
|
|
|
1,247,005
|
|
|
|
1,034,249
|
|
Less: Accumulated depreciation
|
|
|
(208,313
|
)
|
|
|
(139,296
|
)
|
Property and equipment, net
|
|
$
|
1,038,692
|
|
|
$
|
894,953
|
|
Depreciation expense for property and equipment, including finance leases, was $23.9 million and $18.8 million for the three months ended September 30, 2019 and 2018, respectively, and $69.8 million and $58.2 million for the nine months ended September 30, 2019 and 2018, respectively.
Note 4 – Accrued Liabilities
Accrued liabilities consisted of the following:
(In thousands)
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
Gaming liabilities
|
|
$
|
13,954
|
|
|
$
|
12,473
|
|
Interest
|
|
|
13,792
|
|
|
|
305
|
|
Deposits
|
|
|
3,285
|
|
|
|
2,652
|
|
Other accrued liabilities
|
|
|
4,444
|
|
|
|
3,418
|
|
Total accrued and other current liabilities
|
|
$
|
35,475
|
|
|
$
|
18,848
|
|
Note 5 – Long-Term Debt
Long-term debt, net, consisted of the following:
(In thousands)
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
Term loan
|
|
$
|
772,000
|
|
|
$
|
992,000
|
|
Senior notes due 2026
|
|
|
375,000
|
|
|
|
—
|
|
Finance lease liabilities
|
|
|
11,569
|
|
|
|
7,127
|
|
Notes payable
|
|
|
4,748
|
|
|
|
1,111
|
|
Total long-term debt
|
|
|
1,163,317
|
|
|
|
1,000,238
|
|
Less unamortized discount
|
|
|
(19,702
|
)
|
|
|
(25,658
|
)
|
Less unamortized debt issuance costs
|
|
|
(8,367
|
)
|
|
|
(3,537
|
)
|
|
|
|
1,135,248
|
|
|
|
971,043
|
|
Less current maturities
|
|
|
(6,176
|
)
|
|
|
(10,480
|
)
|
Long-term debt, net
|
|
$
|
1,129,072
|
|
|
$
|
960,563
|
|
Senior Secured Credit Facility
In October 2017, the Company entered into a senior secured credit facility consisting of a $900 million senior secured first lien credit facility (consisting of an $800 million term loan and a $100 million revolving credit facility) with JPMorgan Chase Bank, N.A. (as administrative agent and collateral agent), the lenders party thereto and the other entities party thereto (the “Credit Facility”). The revolving credit facility was subsequently increased from $100 million to $200 million in 2018.
As of September 30, 2019, the Company had $772 million in principal amount of outstanding term loan borrowings under its Credit Facility, no letters of credit outstanding under the Credit Facility, and the Company’s revolving credit facility was undrawn, leaving borrowing availability under the revolving credit facility as of September 30, 2019 of $200 million.
As of September 30, 2019, the weighted-average effective interest rate on the Company’s outstanding borrowings under the Credit Facility was approximately 5.4%.
The revolving credit facility matures on October 20, 2022, and the term loan under the Credit Facility matures on October 20, 2024. The term loan under the Credit Facility is repayable in 27 quarterly installments of $2 million each, which commenced in March 2018, followed by a final installment of $746 million at maturity.
11
The Company was in compliance with its financial covenants under the Credit Facility as of September 30, 2019.
Senior Notes due 2026
On April 15, 2019, the Company issued $375 million in principal amount of 7.625% Senior Notes due 2026 (“2026 Notes”) in a private placement to institutional buyers at face value. The 2026 Notes bear interest at 7.625%, payable semi-annually on April 15th and October 15th of each year.
In conjunction with the issuance of the 2026 Notes, the Company incurred approximately $6.7 million in debt financing costs and fees that have been deferred and are being amortized over the term of the 2026 Notes using the effective interest method.
The net proceeds of the 2026 Notes were used to (i) repay the Company’s $200 million second lien term loan (the “Second Lien Term Loan”), (ii) repay outstanding borrowings under the revolving credit facility, (iii) repay $18 million of the outstanding term loan indebtedness under the Credit Facility, and (iv) pay accrued interest, fees and expenses related to each of the foregoing.
The 2026 Notes may be redeemed, in whole or in part, at any time during the 12 months beginning on April 15, 2022 at a redemption price of 103.813%, during the 12 months beginning on April 15, 2023 at a redemption price of 101.906%, and at any time on or after April 15, 2024 at a redemption price of 100%, in each case plus accrued and unpaid interest, if any, thereon to the redemption date. Prior to April 15, 2022, the Company may redeem up to 40% of the 2026 Notes at a redemption price of 107.625% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, from the net cash proceeds of specified equity offerings. Prior to April 15, 2022, the Company may also redeem the 2026 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and an Applicable Premium (as defined in the indenture governing the 2026 Notes (the “Indenture”)), if any, thereon to the redemption date.
Under the Indenture, the Company and its restricted subsidiaries are subject to certain limitations, including limitations on their respective ability to: incur additional debt. grant liens, sell assets, make certain investments, pay dividends and make certain other restricted payments. In addition, in the event of a change of control (as defined in the Indenture), each holder will have the right to require the Company to repurchase all or any part of such holder’s 2026 Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the 2026 Notes repurchased, plus accrued and unpaid interest, if any, to the date of purchase.
Expenses Related to Extinguishment and Modification of Debt
In April 2019, the Company recognized a $5.5 million loss on extinguishment of debt and $3.7 million of expense related to modification of debt, related to the repayment of the Company’s Second Lien Term Loan and $18 million prepayment of the term loan under its Credit Facility.
Note 6 – Stockholders’ Equity and Stock Incentive Plans
Share Repurchase Program
On March 12, 2019, the Company’s Board of Directors authorized the repurchase of up to $25.0 million additional shares of common stock, which replaced the prior share repurchase program authorized in November 2018. Share repurchases may be made from time to time in open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements, including compliance with the Company’s finance agreements. There is no minimum number of shares that the Company is required to repurchase and the repurchase program may be suspended or discontinued at any time without prior notice. As of September 30, 2019, the Company has not repurchased any shares under the March 12, 2019 authorization.
Stock Options
The following table summarizes the Company’s stock option activity:
|
|
Stock Options
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Outstanding at January 1, 2019
|
|
|
3,424,755
|
|
|
$
|
11.49
|
|
Granted
|
|
|
—
|
|
|
$
|
—
|
|
Exercised
|
|
|
(90,890
|
)
|
|
$
|
9.10
|
|
Cancelled
|
|
|
(21,875
|
)
|
|
$
|
11.41
|
|
Outstanding at September 30, 2019
|
|
|
3,311,990
|
|
|
$
|
11.56
|
|
Exercisable at September 30, 2019
|
|
|
2,793,348
|
|
|
$
|
11.32
|
|
Share-based compensation expense related to stock options was $0.8 million and $1.1 million for the three months ended September 30, 2019 and 2018, respectively, and $4.2 million and $4.0 million for the nine months ended September 30, 2019 and
12
2018, respectively. The Company’s unrecognized share-based compensation expense related to stock options was approximately $2.8 million as of September 30, 2019, which is expected to be recognized over a weighted-average period of 1.2 years.
Restricted Stock Units
The following table summarizes the Company’s activity related to time-based restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”):
|
|
RSUs
|
|
|
PSUs
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Average Grant
|
|
|
|
|
|
|
Average Grant
|
|
|
|
Shares
|
|
|
Date Fair Value
|
|
|
Shares(1)
|
|
|
Date Fair Value
|
|
Outstanding at January 1, 2019
|
|
|
232,299
|
|
|
$
|
29.10
|
|
|
|
171,748
|
|
|
$
|
28.41
|
|
Granted
|
|
|
561,606
|
|
|
$
|
13.94
|
|
|
|
204,580
|
|
|
$
|
14.13
|
|
Vested
|
|
|
(102,218
|
)
|
|
$
|
29.59
|
|
|
|
—
|
|
|
$
|
—
|
|
Cancelled
|
|
|
(20,899
|
)
|
|
$
|
22.69
|
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding at September 30, 2019
|
|
|
670,788
|
|
|
$
|
16.53
|
|
|
|
376,328
|
|
|
$
|
20.65
|
|
__________________
(1)
|
The number of shares for 62,791 of the PSUs listed as outstanding at January 1, 2019 represents the actual number of PSUs granted to each recipient eligible to vest if the Company meets its performance goals for the applicable period. The number of shares for the remainder of the PSUs listed as outstanding at January 1, 2019 and for all of the PSUs granted in 2019 represents the “target” number of PSUs granted to each recipient eligible to vest if the Company meets its “target” performance goals for the applicable period. The actual number of PSUs eligible to vest for those PSUs will vary depending on whether or not the Company meets or exceeds the applicable threshold, target or maximum performance goals for the PSUs, with 200% of the “target” number of PSUs eligible to vest at “maximum” performance levels.
|
Share-based compensation expense related to RSUs was $1.1 million for both the three months ended September 30, 2019 and 2018, and $3.1 million and $2.3 million for the nine months ended September 30, 2019 and 2018, respectively. Share-based compensation expense related to PSUs was $0.7 million and $0.3 million for the three months ended September 30, 2019 and 2018, respectively, and $1.4 million and $0.8 million for the nine months ended September 30, 2019 and 2018, respectively.
As of September 30, 2019, there was $7.6 million and $4.1 million of unamortized share-based compensation expense related to RSUs and PSUs, respectively, which is expected to be recognized over a weighted-average period of 2.6 years and 2.2 years for RSUs and PSUs, respectively.
As of September 30, 2019, a total of 1,267,201 shares of the Company’s common stock remained available for grants of awards under the Golden Entertainment, Inc. 2015 Incentive Award Plan (the “2015 Plan”), which includes the annual increase in the number of shares available for grant on January 1, 2019 of 1,119,924 shares.
Note 7 – Income Taxes
The Company’s effective tax rate was 4.5% and (2.5)% for the nine months ended September 30, 2019 and 2018, respectively.
Income tax benefit of $1.8 million for the nine months ended September 30, 2019 was primarily due to the change in valuation allowance against the Company’s deferred tax assets during the first nine months of 2019. Income tax benefit was $0.1 million for the nine months ended September 30, 2018 was primarily due to excess tax benefits from stock options exercised during the third quarter of 2018.
Deferred tax assets are evaluated by considering historical levels of income, estimates of future taxable income and the impact of tax planning strategies. The Company continues to evaluate its deferred tax asset valuation allowance on a quarterly basis.
As of September 30, 2019, the Company’s 2017 tax year is under audit by the IRS.
Note 8 – Financial Instruments and Fair Value Measurements
Estimates of fair value for financial assets and liabilities are based on the framework established in the accounting guidance for fair value measurements. The framework defines fair value, provides guidance for measuring fair value and requires certain disclosures. The framework discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The framework utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
|
•
|
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
•
|
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
|
13
|
•
|
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
|
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Thus, assets and liabilities categorized as Level 3 may be measured at fair value using inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Management's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy levels.
The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short duration of these financial instruments.
The following table summarizes the fair value measurement information about the Company’s long-term debt:
|
|
September 30, 2019
|
|
|
Carrying
|
|
|
Fair
|
|
|
Fair Value
|
(In thousands)
|
|
Amount
|
|
|
Value
|
|
|
Hierarchy
|
Term loans
|
|
$
|
772,000
|
|
|
$
|
775,358
|
|
|
Level 2
|
Senior notes due 2026
|
|
|
375,000
|
|
|
|
390,938
|
|
|
Level 2
|
Finance lease liabilities
|
|
|
11,569
|
|
|
|
11,569
|
|
|
Level 3
|
Notes payable
|
|
|
4,748
|
|
|
|
4,748
|
|
|
Level 3
|
Total debt
|
|
$
|
1,163,317
|
|
|
$
|
1,182,613
|
|
|
|
|
|
December 31, 2018
|
|
|
Carrying
|
|
|
Fair
|
|
|
Fair Value
|
(In thousands)
|
|
Amount
|
|
|
Value
|
|
|
Hierarchy
|
Term loans
|
|
$
|
992,000
|
|
|
$
|
952,300
|
|
|
Level 2
|
Finance lease liabilities
|
|
|
7,127
|
|
|
|
7,127
|
|
|
Level 3
|
Notes payable
|
|
|
1,111
|
|
|
|
1,111
|
|
|
Level 3
|
Total debt
|
|
$
|
1,000,238
|
|
|
$
|
960,538
|
|
|
|
The estimated fair value of the Company’s term loan debt is based on a relative value analysis performed as of September 30, 2019 and December 31, 2018. The finance lease liabilities and note payable debt are fixed-rate debt, are not traded and do not have observable market inputs, therefore, the fair value is estimated to be equal to the carrying value.
As of September 30, 2019, the Company had an interest rate cap agreement that was outstanding with a notional amount of $650 million, which expires on December 31, 2020. Using Level 2 inputs, the Company adjusts the carrying value of the interest rate cap agreement to estimated fair value quarterly based upon observable market-based inputs that reflect the present values of the difference between estimated future fixed rate payments and future variable receipts. The fair value of the Company’s interest rate cap agreement was $5.0 million as of December 31, 2018 and had no value as of September 30, 2019. As the Company elected to not apply hedge accounting, the change in fair value of its interest rate cap agreement was recorded in the consolidated statement of operations.
Note 9 – Leases
Company as Lessee
The Company has operating and finance leases for offices, taverns, land, vehicles, slot machines, and equipment. In addition, slot placement contracts in the form of space lease agreements at chain stores are accounted for as operating leases. Under chain store space lease agreements, the Company pays fixed monthly rental fees for the right to install, maintain and operate its slots at business locations, which are recorded in gaming expenses. The leases, excluding land, have remaining lease terms of 1 year to 28 years, some of which include options to extend the leases for an additional 5 to 15 years. Some equipment leases and space lease agreements include options to terminate the lease with 60 days’ to 1 year’s notice. The Company leases slot machines from gaming equipment manufacturers under short-term agreements. Most of the slot machine leases have variable rent structures, with amounts determined based on the performance of those machines. Certain others are short-term in nature, with fixed payment amounts. The Company has an operating ground lease with the Maryland Department of Natural Resources for approximately 270 acres in the Rocky Gap State Park on which Rocky Gap is situated. The Company leases approximately 20 acres of land in Laughlin, Nevada for the Laughlin Event Center and four parcels of land in Pahrump, Nevada on which the Gold Town Casino is located.
The Company leases approximately 4.5 acres of undeveloped land in Carson City. Upon the adoption of Topic 842, the Company wrote off the associated ROU asset for this land lease of $9 million to its beginning balance of retained earnings as of January 1, 2019. The Company is also lessee for nine taverns and locations subject to space lease agreements that it does not plan to develop, operate, or sub-lease. The Company wrote off the associated ROU asset for these ten leases of $3 million to its beginning balance of retained earnings as of January 1, 2019.
The Company leases its office headquarters building from a related party. See Note 12, Related Party Transactions, for more detail.
14
The current and long-term obligations under finance leases are included in “current portion of long-term debt, net and finance leases” and “long-term debt, net and finance leases”, respectively. The majority of the finance leases relate to vehicles used within the Company’s Distributed Gaming business and equipment for the Company’s casinos.
The components of lease expense are follows:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(In thousands)
|
Classification
|
|
September 30, 2019
|
|
|
September 30, 2019
|
|
Operating lease cost
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
Operating and SG&A expenses
|
|
$
|
11,397
|
|
|
$
|
34,453
|
|
Variable lease cost
|
Operating and SG&A expenses
|
|
|
6,411
|
|
|
|
15,065
|
|
Short-term lease cost
|
Operating and SG&A expenses
|
|
|
1,029
|
|
|
|
3,190
|
|
Total operating lease cost
|
|
|
$
|
18,837
|
|
|
$
|
52,708
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease cost
|
|
|
|
|
|
|
|
|
|
Amortization of lease assets
|
Depreciation and amortization
|
|
$
|
493
|
|
|
$
|
1,492
|
|
Interest on lease liabilities
|
Interest expense, net
|
|
|
78
|
|
|
|
276
|
|
Total finance lease cost
|
|
|
$
|
571
|
|
|
$
|
1,768
|
|
Supplemental cash flow information related to leases is as follows:
|
|
Nine Months Ended
|
|
(In thousands)
|
|
September 30, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
35,057
|
|
Operating cash flows from finance leases
|
|
|
276
|
|
Financing cash flows from finance leases
|
|
|
1,267
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
|
$
|
36,117
|
|
Finance leases
|
|
|
5,768
|
|
Supplemental balance sheet information related to leases is as follows:
(In thousands, except lease term and discount rate)
|
|
September 30, 2019
|
|
Operating leases
|
|
|
|
|
Operating lease right-of-use assets, gross
|
|
$
|
175,898
|
|
Accumulated amortization
|
|
|
26,987
|
|
Operating lease right-of-use assets, net
|
|
$
|
148,911
|
|
|
|
|
|
|
Current portion of operating leases
|
|
$
|
25,822
|
|
Noncurrent operating leases
|
|
|
138,104
|
|
Total operating lease liabilities
|
|
$
|
163,926
|
|
|
|
|
|
|
Finance leases
|
|
|
|
|
Property and equipment, gross
|
|
$
|
18,209
|
|
Accumulated depreciation
|
|
|
(3,356
|
)
|
Property and equipment, net
|
|
$
|
14,853
|
|
|
|
|
|
|
Current portion of finance leases, net
|
|
$
|
3,201
|
|
Noncurrent finance leases, net
|
|
|
8,368
|
|
Total finance lease liabilities
|
|
$
|
11,569
|
|
15
Weighted Average Remaining Lease Term
|
|
|
|
|
Operating leases
|
|
10.3 years
|
|
Finance leases
|
|
6.9 years
|
|
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
|
|
Operating leases
|
|
|
6.3
|
%
|
Finance leases
|
|
|
6.5
|
%
|
Maturity of Lease Liabilities
|
|
Operating
|
|
|
Finance
|
|
|
|
|
|
(In thousands)
|
|
Leases
|
|
|
Leases
|
|
|
Total
|
|
Remaining 2019
|
|
$
|
11,373
|
|
|
$
|
1,037
|
|
|
$
|
12,410
|
|
2020
|
|
|
30,776
|
|
|
|
3,787
|
|
|
|
34,563
|
|
2021
|
|
|
29,441
|
|
|
|
3,290
|
|
|
|
32,731
|
|
2022
|
|
|
22,906
|
|
|
|
1,954
|
|
|
|
24,860
|
|
2023
|
|
|
17,469
|
|
|
|
529
|
|
|
|
17,998
|
|
Thereafter
|
|
|
117,243
|
|
|
|
4,055
|
|
|
|
121,298
|
|
Total lease payments
|
|
|
229,208
|
|
|
|
14,652
|
|
|
|
243,860
|
|
Less: interest
|
|
|
(65,282
|
)
|
|
|
(3,083
|
)
|
|
|
(68,365
|
)
|
Present value of lease liabilities
|
|
$
|
163,926
|
|
|
$
|
11,569
|
|
|
$
|
175,495
|
|
As of September 30, 2019, the Company does not have any leases that have not yet commenced but that create significant rights and obligations.
Company as Lessor
Minimum and contingent operating lease income is as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(In thousands)
|
|
September 30, 2019
|
|
|
September 30, 2019
|
|
Minimum rental income
|
|
$
|
1,923
|
|
|
$
|
5,721
|
|
Contingent rental income
|
|
|
552
|
|
|
|
1,137
|
|
Total rental income
|
|
$
|
2,475
|
|
|
$
|
6,858
|
|
Future minimum rental payments to be received under operating leases:
(In thousands)
|
|
Operating Leases
|
|
Remaining 2019
|
|
$
|
1,113
|
|
2020
|
|
|
4,204
|
|
2021
|
|
|
3,272
|
|
2022
|
|
|
2,433
|
|
2023
|
|
|
1,763
|
|
Thereafter
|
|
|
2,546
|
|
Total future minimum rentals
|
|
$
|
15,331
|
|
Disclosures related to periods prior to adoption of Topic 842
For the three months ended September 30, 2018, operating lease rental expense, calculated on a straight-line basis, was $9.6 million, $0.4 million and $3.8 million for space lease agreements, related party leases and other operating leases, respectively. For the nine months ended September 30, 2018, operating lease rental expense, calculated on a straight-line basis, was $29.0 million, $1.2 million, and $11.2 million for space lease agreements, related party leases and other operating leases, respectively. The Company recorded rental revenue of $1.9 million and $5.5 million for the three and nine months ended September 30, 2018, respectively.
Note 10 – Commitments and Contingencies
Participation and Revenue Share Agreements
In addition to the space lease agreements described above in Note 9, Leases, the Company also enters into slot placement contracts in the form of participation and revenue share agreements. Under participation agreements, the business location holds the applicable gaming license and retains a percentage of the gaming revenue that it generates from the Company’s slots. Under revenue share agreements, the Company pays the business location a percentage of the gaming revenue generated from the Company’s slots placed
16
at the location, rather than a fixed monthly rental fee. During the three and nine months ended September 30, 2019, the aggregate contingent payments recognized by the Company as gaming expenses under revenue share and participation agreements were $39.3 million and $117.3 million, respectively, including $0.2 million and $0.7 million, respectively, under revenue share and participation agreements with related parties, as described in Note 12, Related Party Transactions. During the three and nine months ended September 30, 2018, the aggregate contingent payments recognized by the Company as gaming expenses under revenue share and participation agreements were $35.5 million and $110.1 million, respectively, including $0.2 million and $0.7 million, respectively, under revenue share and participation agreements with related parties.
The Company also enters into amusement device and ATM placement contracts in the form of participation agreements. Under these agreements, the Company pays the business location a percentage of the non-gaming revenue generated from the Company’s amusement devices and ATMs placed at the location. During the three months ended September 30, 2019 and 2018, the total contingent payments recognized by the Company as other operating expenses for amusement devices and ATMs under such agreements were $0.4 million and $0.3 million, respectively. During the nine months ended September 30, 2019 and 2018, the total contingent payments recognized by the Company as other operating expenses for amusement devices and ATMs under such agreements were both $1.1 million.
Legal Matters
From time to time, the Company is involved in a variety of lawsuits, claims, investigations and other legal proceedings arising in the ordinary course of business, including proceedings concerning labor and employment matters, personal injury claims, breach of contract claims, commercial disputes, business practices, intellectual property, tax and other matters for which the Company records reserves. Although lawsuits, claims, investigations and other legal proceedings are inherently uncertain and their results cannot be predicted with certainty, the Company believes that the resolution of its currently pending matters should not have a material adverse effect on its business, financial condition, results of operations or liquidity. Regardless of the outcome, legal proceedings can have an adverse impact on the Company because of defense costs, diversion of management resources and other factors. In addition, it is possible that an unfavorable resolution of one or more such proceedings could in the future materially and adversely affect the Company’s business, financial condition, results of operations or liquidity in a particular period.
In 2017, several former employees filed two separate purported class action lawsuits against the Company in the District Court of Clark County, Nevada, on behalf of similarly situated individuals employed by the Company in the State of Nevada. The lawsuits alleged that the Company violated certain Nevada labor laws including payment of an hourly wage below the statutory minimum wage without providing a qualified health insurance plan and an associated failure to pay proper overtime compensation. The court approved the settlement of one case in February 2019 and the second case in July 2019.
In August 2018, prior guests of The Strat filed a purported class action complaint against the Company in the District Court, Clark County, Nevada, on behalf of similarly situated individuals and entities that paid the Clark County Combined Transient Lodging Tax (“Tax”) on the portion of a resort fee that constitutes charges for Internet access, during the period of February 6, 2014 through the date the alleged conduct ceases. The lawsuit alleged that the Tax was charged in violation of the federal Internet Tax Freedom Act, which imposed a national moratorium on the taxation of Internet access by states and their political subdivisions, and sought, on behalf of the plaintiff and the putative class, damages equal to the amount of the Tax collected on the Internet access component of the resort fee, injunctive relief, disgorgement, interest, fees and costs. All defendants to this matter, including Golden Entertainment, Inc., filed a joint motion to dismiss this matter for lack of merit. The District Court granted this joint motion to dismiss in February 2019. The plaintiffs appealed the District Court decision in April 2019 to the Supreme Court of Nevada. Briefs in this matter were filed with the Federal Appeals Court in October 2019.
While legal proceedings are inherently unpredictable and no assurance can be given as to the ultimate outcome of any of the above matters, based on management’s current understanding of the relevant facts and circumstances, the Company believes that these proceedings should not have a material adverse effect on its financial position, results of operations or cash flows.
Note 11 – Segment Information
The Company conducts its business through two reportable operating segments: Casinos and Distributed Gaming. The Company’s Casinos segment involves the ownership and operation of resort casino properties in Nevada and Maryland. The Company’s Distributed Gaming segment involves the installation, maintenance and operation of slots and amusement devices in non-casino locations such as restaurants, bars, taverns, convenience stores, liquor stores and grocery stores in Nevada and Montana, and the operation of branded taverns targeting local patrons located primarily in the greater Las Vegas, Nevada metropolitan area. The Corporate and Other segment includes the Company’s cash and cash equivalents, miscellaneous receivables and corporate overhead. Costs recorded in the Corporate and Other segment have not been allocated to the Company’s reportable operating segments because these costs are not easily allocable and to do so would not be practical.
The Company evaluates each segment’s profitability based upon such segment’s Adjusted EBITDA, which represents each segment’s earnings before interest and other non-operating income (expense), income taxes, depreciation and amortization, preopening expense, acquisition expenses, share-based compensation expenses, executive severance, rebranding, class action litigation expenses, gain/loss
17
on disposal of property and equipment, gain on change in fair value of derivative and other losses, calculated before corporate overhead (which is not allocated to each segment).
The following tables set forth, for the periods indicated, certain operating data for the Company’s segments, and reconciles net income (loss) to Adjusted EBITDA:
|
|
Three Months Ended September 30, 2019
|
|
(In thousands)
|
|
Casinos
|
|
|
Distributed
Gaming
|
|
|
Corporate and
Other
|
|
|
Consolidated
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming
|
|
$
|
69,953
|
|
|
$
|
72,615
|
|
|
$
|
—
|
|
|
$
|
142,568
|
|
Food and beverage
|
|
|
37,836
|
|
|
|
13,273
|
|
|
|
—
|
|
|
|
51,109
|
|
Rooms
|
|
|
35,347
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35,347
|
|
Other
|
|
|
11,977
|
|
|
|
2,110
|
|
|
|
203
|
|
|
|
14,290
|
|
Total revenues
|
|
$
|
155,113
|
|
|
$
|
87,998
|
|
|
$
|
203
|
|
|
$
|
243,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
17,858
|
|
|
$
|
5,786
|
|
|
$
|
(33,091
|
)
|
|
$
|
(9,447
|
)
|
Depreciation and amortization
|
|
|
23,500
|
|
|
|
5,616
|
|
|
|
495
|
|
|
|
29,611
|
|
Preopening and related expenses(1)
|
|
|
308
|
|
|
|
189
|
|
|
|
59
|
|
|
|
556
|
|
Acquisition and severance expenses
|
|
|
137
|
|
|
|
—
|
|
|
|
291
|
|
|
|
428
|
|
Asset disposal and other writedowns
|
|
|
(4
|
)
|
|
|
(223
|
)
|
|
|
(6
|
)
|
|
|
(233
|
)
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
2,583
|
|
|
|
2,583
|
|
Other, net
|
|
|
218
|
|
|
|
—
|
|
|
|
25
|
|
|
|
243
|
|
Interest expense, net
|
|
|
200
|
|
|
|
18
|
|
|
|
18,558
|
|
|
|
18,776
|
|
Change in fair value of derivative
|
|
|
—
|
|
|
|
—
|
|
|
|
352
|
|
|
|
352
|
|
Income tax provision
|
|
|
—
|
|
|
|
—
|
|
|
|
200
|
|
|
|
200
|
|
Adjusted EBITDA
|
|
$
|
42,217
|
|
|
$
|
11,386
|
|
|
$
|
(10,534
|
)
|
|
$
|
43,069
|
|
|
|
Three Months Ended September 30, 2018
|
|
(In thousands)
|
|
Casinos
|
|
|
Distributed
Gaming
|
|
|
Corporate and
Other
|
|
|
Consolidated
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming
|
|
$
|
60,440
|
|
|
$
|
67,324
|
|
|
$
|
—
|
|
|
$
|
127,764
|
|
Food and beverage
|
|
|
29,666
|
|
|
|
12,333
|
|
|
|
—
|
|
|
|
41,999
|
|
Rooms
|
|
|
28,227
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28,227
|
|
Other
|
|
|
10,504
|
|
|
|
1,531
|
|
|
|
312
|
|
|
|
12,347
|
|
Total revenues
|
|
$
|
128,837
|
|
|
$
|
81,188
|
|
|
$
|
312
|
|
|
$
|
210,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
19,113
|
|
|
$
|
5,014
|
|
|
$
|
(27,251
|
)
|
|
$
|
(3,124
|
)
|
Depreciation and amortization
|
|
|
17,667
|
|
|
|
5,292
|
|
|
|
371
|
|
|
|
23,330
|
|
Preopening expenses(1)
|
|
|
—
|
|
|
|
73
|
|
|
|
(52
|
)
|
|
|
21
|
|
Acquisition and severance expenses
|
|
|
54
|
|
|
|
1
|
|
|
|
1,188
|
|
|
|
1,243
|
|
Asset disposal and other writedowns
|
|
|
770
|
|
|
|
4
|
|
|
|
—
|
|
|
|
774
|
|
Share-based compensation
|
|
|
37
|
|
|
|
3
|
|
|
|
2,743
|
|
|
|
2,783
|
|
Other, net
|
|
|
—
|
|
|
|
—
|
|
|
|
269
|
|
|
|
269
|
|
Interest expense, net
|
|
|
25
|
|
|
|
21
|
|
|
|
16,245
|
|
|
|
16,291
|
|
Change in fair value of derivative
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,222
|
)
|
|
|
(1,222
|
)
|
Income tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,222
|
)
|
|
|
(2,222
|
)
|
Adjusted EBITDA
|
|
$
|
37,666
|
|
|
$
|
10,408
|
|
|
$
|
(9,931
|
)
|
|
$
|
38,143
|
|
18
|
|
Nine Months Ended September 30, 2019
|
|
(In thousands)
|
|
Casinos
|
|
|
Distributed
Gaming
|
|
|
Corporate and
Other
|
|
|
Consolidated
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming
|
|
$
|
213,075
|
|
|
$
|
219,531
|
|
|
$
|
—
|
|
|
$
|
432,606
|
|
Food and beverage
|
|
|
113,327
|
|
|
|
39,644
|
|
|
|
—
|
|
|
|
152,971
|
|
Rooms
|
|
|
102,148
|
|
|
|
—
|
|
|
|
—
|
|
|
|
102,148
|
|
Other
|
|
|
36,653
|
|
|
|
6,333
|
|
|
|
565
|
|
|
|
43,551
|
|
Total revenues
|
|
$
|
465,203
|
|
|
$
|
265,508
|
|
|
$
|
565
|
|
|
$
|
731,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
63,018
|
|
|
$
|
20,739
|
|
|
$
|
(115,630
|
)
|
|
$
|
(31,873
|
)
|
Depreciation and amortization
|
|
|
69,195
|
|
|
|
16,514
|
|
|
|
1,143
|
|
|
|
86,852
|
|
Preopening and related expenses(1)
|
|
|
2,662
|
|
|
|
1,415
|
|
|
|
208
|
|
|
|
4,285
|
|
Acquisition and severance expenses
|
|
|
524
|
|
|
|
35
|
|
|
|
2,536
|
|
|
|
3,095
|
|
Asset disposal and other writedowns
|
|
|
763
|
|
|
|
(158
|
)
|
|
|
384
|
|
|
|
989
|
|
Share-based compensation
|
|
|
11
|
|
|
|
5
|
|
|
|
8,885
|
|
|
|
8,901
|
|
Other, net
|
|
|
310
|
|
|
|
—
|
|
|
|
1,284
|
|
|
|
1,594
|
|
Interest expense, net
|
|
|
316
|
|
|
|
57
|
|
|
|
55,673
|
|
|
|
56,046
|
|
Loss on extinguishment and modification of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
9,150
|
|
|
|
9,150
|
|
Change in fair value of derivative
|
|
|
—
|
|
|
|
—
|
|
|
|
4,089
|
|
|
|
4,089
|
|
Income tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,795
|
)
|
|
|
(1,795
|
)
|
Adjusted EBITDA
|
|
$
|
136,799
|
|
|
$
|
38,607
|
|
|
$
|
(34,073
|
)
|
|
$
|
141,333
|
|
|
|
Nine Months Ended September 30, 2018
|
|
(In thousands)
|
|
Casinos
|
|
|
Distributed
Gaming
|
|
|
Corporate and
Other
|
|
|
Consolidated
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming
|
|
$
|
186,828
|
|
|
$
|
207,345
|
|
|
$
|
—
|
|
|
$
|
394,173
|
|
Food and beverage
|
|
|
90,405
|
|
|
|
37,619
|
|
|
|
—
|
|
|
|
128,024
|
|
Rooms
|
|
|
82,014
|
|
|
|
—
|
|
|
|
—
|
|
|
|
82,014
|
|
Other
|
|
|
31,003
|
|
|
|
5,782
|
|
|
|
673
|
|
|
|
37,458
|
|
Total revenues
|
|
$
|
390,250
|
|
|
$
|
250,746
|
|
|
$
|
673
|
|
|
$
|
641,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
67,190
|
|
|
$
|
20,014
|
|
|
$
|
(82,804
|
)
|
|
$
|
4,400
|
|
Depreciation and amortization
|
|
|
54,714
|
|
|
|
15,419
|
|
|
|
1,288
|
|
|
|
71,421
|
|
Preopening expenses(1)
|
|
|
—
|
|
|
|
309
|
|
|
|
549
|
|
|
|
858
|
|
Acquisition and severance expenses
|
|
|
273
|
|
|
|
38
|
|
|
|
2,796
|
|
|
|
3,107
|
|
Asset disposal and other writedowns
|
|
|
1,050
|
|
|
|
19
|
|
|
|
—
|
|
|
|
1,069
|
|
Share-based compensation
|
|
|
37
|
|
|
|
3
|
|
|
|
7,345
|
|
|
|
7,385
|
|
Other, net
|
|
|
160
|
|
|
|
362
|
|
|
|
472
|
|
|
|
994
|
|
Interest expense, net
|
|
|
74
|
|
|
|
93
|
|
|
|
46,933
|
|
|
|
47,100
|
|
Change in fair value of derivative
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,895
|
)
|
|
|
(5,895
|
)
|
Income tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
(106
|
)
|
|
|
(106
|
)
|
Adjusted EBITDA
|
|
$
|
123,498
|
|
|
$
|
36,257
|
|
|
$
|
(29,422
|
)
|
|
$
|
130,333
|
|
(1)
|
Preopening expenses include rent, organizational costs, non-capital costs associated with the opening of tavern and casino locations, and expenses related to The Strat rebranding and the launch of the TrueRewards loyalty program.
|
Total Segment Assets
The Company’s assets by segment consisted of the following amounts:
(In thousands)
|
|
Casinos
|
|
|
Distributed
Gaming
|
|
|
Corporate and
Other
|
|
|
Consolidated
|
|
Balance at September 30, 2019
|
|
$
|
1,198,490
|
|
|
$
|
423,202
|
|
|
$
|
69,027
|
|
|
$
|
1,690,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
$
|
1,006,292
|
|
|
$
|
299,697
|
|
|
$
|
60,580
|
|
|
$
|
1,366,569
|
|
19
Note 12 – Related Party Transactions
As of September 30, 2019, the Company leased its office headquarters building from a company 33% beneficially owned by Blake L. Sartini, 5% owned by a trust for the benefit of Mr. Sartini’s immediate family members (including Blake L. Sartini, II) for which Mr. Sartini serves as trustee, and 3% beneficially owned by Stephen A. Arcana. The rent expense for the office headquarters building was $0.3 million for each of the three months ended September 30, 2019 and 2018, and $1.0 million for each of the nine months ended September 30, 2019 and 2018. There were no amounts owed to the Company, and no amount was due and payable by the Company, under this lease as of September 30, 2019 and December 31, 2018. Additionally, a portion of the office headquarters building was sublet to a company owned or controlled by Mr. Sartini. There was less than $0.1 million of rental income under such sublease for each of the three and nine months ended September 30, 2019 and 2018. No amount was owed to the Company under such sublease as of September 30, 2019 and December 31, 2018. Mr. Sartini serves as the Chairman of the Board and Chief Executive Officer of the Company and is co-trustee of The Blake L. Sartini and Delise F. Sartini Family Trust, which is a significant shareholder of the Company. Mr. Arcana serves as the Executive Vice President and Chief Operating Officer of the Company.
In November 2018, the Company entered into a lease agreement for office space in a building to be constructed and owned by a company 33% beneficially owned by Mr. Sartini, 5% owned by a trust for the benefit of Mr. Sartini’s immediate family members (including Blake L. Sartini, II) for which Mr. Sartini serves as trustee, and 3% beneficially owned by Mr. Arcana. The lease is intended to commence in 2019 and expires on December 31, 2030. The rent expense for the space is expected to be approximately $0.3 million per year. Additionally, the lease agreement includes a right of first refusal for additional space on the second floor of the building.
One tavern location that the Company had previously leased from a related party was sold in the second quarter of 2019 to an unrelated third party. A second tavern location that the Company had previously leased from a related party was sold in 2018 to an unrelated third party. The rent expense for tavern locations leased from related parties (for the periods in which the leases were with related parties) was $0.1 million for the three months ended September 30, 2018 and $0.2 million and $0.4 million during the nine months ended September 30, 2019 and 2018, respectively. No tavern locations were leased from related parties during the three months ended September 30, 2019. There were no amounts owed to the Company, and no amount was due and payable by the Company, under such leases as of December 31, 2018.
During the three months ended September 30, 2019 and 2018, the Company paid less than $0.1 million in each period under aircraft time-sharing, co-user and cost-sharing agreements between the Company and Sartini Enterprises, Inc. a company controlled by Mr. Sartini. During the nine months ended September 30, 2019 and 2018, the Company paid $0.5 million and $0.2 million, respectively, under the aircraft time-sharing, co-user and cost-sharing agreements. The Company owed less than $0.1 million under the aircraft time-sharing, co-user and cost-sharing agreements as of September 30, 2019 and December 31, 2018.
During the three months ended September 30, 2019 and 2018, the Company recorded revenues of $0.2 million in each period, and the Company recorded gaming expenses of $0.2 million in each period, related to the use of the Company’s slots at a distributed gaming location owned in part by Sean T. Higgins, who serves as the Company’s Executive Vice President of Government Affairs. During each of the nine months ended September 30, 2019 and 2018, the Company recorded revenues of $0.8 million and $0.7 million, respectively, and the Company recorded gaming expenses of $0.7 million in each period, related to the use of the Company’s slots at this distributed gaming location. De minimis amounts were owed to the Company and were due and payable by the Company related to this arrangement as of September 30, 2019 and December 31, 2018.
During the three months ended September 30, 2018, the Company recorded expenses of less than $0.1 million related to a three-year consulting agreement between the Company and Lyle A. Berman, who serves on the Board of Directors of the Company. During the nine months ended September 30, 2018, the Company recorded $0.2 million of SG&A expenses related to Mr. Berman’s consulting agreement. No amount was due and payable by the Company as of December 31, 2018 related to this agreement. The consulting agreement expired on July 31, 2018.
Note 13 – Subsequent Events
The Company’s management evaluates subsequent events through the date of issuance of the consolidated financial statements. There have been no subsequent events that occurred during such period that would require adjustment to or disclosure in the consolidated financial statements as of and for the nine months ended September 30, 2019.
20