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 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). Unless otherwise indicated, the terms “Golden” and the “Company,” refer to Golden Entertainment, Inc. together with its subsidiaries.
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 Boulder
|
Las Vegas, Nevada
|
Arizona Charlie’s Decatur
|
Las Vegas, Nevada
|
Aquarius Casino Resort (“Aquarius”)
|
Laughlin, Nevada
|
Colorado Belle Hotel & Casino Resort (“Colorado Belle”) (1)
|
Laughlin, Nevada
|
Edgewater Hotel & Casino Resort (“Edgewater”)
|
Laughlin, Nevada
|
Gold Town Casino
|
Pahrump, Nevada
|
Lakeside Casino & RV Park
|
Pahrump, Nevada
|
Pahrump Nugget Hotel Casino (“Pahrump Nugget”)
|
Pahrump, Nevada
|
Rocky Gap Casino Resort (“Rocky Gap”)
|
Flintstone, Maryland
|
(1)As a result of the impact of the 2019 novel coronavirus (“COVID-19”) pandemic, the operations of the Colorado Belle remain suspended.
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.
Impact of COVID-19
Since the declaration of COVID-19 as a pandemic on March 11, 2020, people across the globe have been advised to avoid non-essential travel, and steps have been taken by governmental authorities, including in the states in which the Company operates, to implement closures of non-essential operations to contain the spread of the virus. The pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. Following emergency executive orders issued by the Governors of Nevada, Maryland and Montana in the week of March 16, 2020, all of the Company’s properties were temporarily closed to the public and the Distributed Gaming operations at third-party locations were suspended. The Company’s Distributed Gaming operations in Montana and Nevada resumed on May 4, 2020 and June 4, 2020, respectively, and the Company’s Casino operations in Nevada and Maryland resumed on June 4, 2020 and June 19, 2020, respectively. However, as a result of the impact of the pandemic, the operations of the Colorado Belle remain suspended. While all of the Company’s properties, except for the Colorado Belle, re-opened during the second quarter of 2020, the implementation of protocols intended to protect team members, gaming patrons and guests from potential COVID-19 exposure continues to limit the Company’s operations. These measures include enhanced sanitization, public gathering limitations on casino, tavern and venue capacity, patron social distancing requirements, restrictions on permitted hours of operations, limitations on casino operations, which include disabling electronic gaming machines, and face mask and temperature check requirements for patrons. Certain amenities at the Company’s casinos may remain closed or operate in a limited capacity, including restaurants, bars, and other food and beverage outlets, as well as table games, showrooms, meeting rooms, spas and pools. These measures limit the number of patrons that are able to attend these venues. The Company cannot predict when these restrictions on the Company’s operations will be eliminated.
On July 10, 2020, the Governor of Nevada issued an emergency executive order mandating the closure of bar tops and bar areas in restaurants, bars, pubs, taverns, breweries, distilleries, wineries and related facilities that are licensed to serve food in seven counties, including Clark County (the location of most of our branded taverns). In response to the Governor’s executive order, the Company immediately closed most of its tavern locations. The Company implemented modifications of the gaming areas in its taverns which allowed it to re-open its tavern locations beginning in late July 2020 and all of the tavern locations had re-opened by the end of September 2020.
On November 24, 2020, the Governor of Nevada issued an emergency executive order limiting occupancy in gaming areas and non-gaming businesses, including, but not limited to, retail stores, restaurants and bars, non-retail venues, pools and aquatic facilities, and other establishments in Nevada to 25% of the listed fire code capacity. On February 15, 2021 these restrictions were relaxed to allow the occupancy rate at gaming floors and food and beverage establishments, including restaurants, bars, pubs, wineries, distilleries and breweries, to increase to 35%, while permitted occupancy at retail stores, pools and aquatic facilities increased to 50% of the listed fire code capacity. On March 15, 2021 the Governor of Nevada further eased the occupancy limitations on the gaming properties by allowing the occupancy rate to go up to 50% of the listed fire code capacity. On May 1, 2021, the occupancy limitations for establishments located in Clark County were further eased by increasing to 80%, subject to state law considerations. It is uncertain when the COVID-19 mitigation measures in place as of the filing of this Quarterly Report on Form 10-Q will be further eased or eliminated.
With respect to the Company’s operations in Montana, on November 20, 2020, the Governor of Montana issued an emergency executive order limiting operating capacity in all restaurants and bars to 50%. In addition, the order required all such businesses to close between the hours of 10 pm and 4 am. In January 2021, the Governor of Montana rescinded the requirement for limited operating capacity, although certain restrictions at various counties remained in place as of March 31, 2021.
The Company’s Maryland operations have been subject to a reduced operating capacity requirement of 50% since re-opening on June 19, 2020. On November 17, 2020, the Governor of Maryland issued an emergency executive order further restricting food service establishments by requiring them to close from 10 pm to 6 am. During these closure hours, such establishments are allowed to take carry out and delivery orders off premises but such venues, including casinos, are not permitted to serve any beverages. On March 12, 2021, the Governor of Maryland rescinded all emergency executive orders related to COVID-19 limitations.
Temporary closures of the Company’s operations due to the COVID-19 pandemic resulted in lease concessions for certain of the Company’s taverns and route locations. Such concessions provided for deferral and, in some instances, forgiveness of rent payments with no substantive amendments to the consideration due per the terms of the original contract and did not result in a substantial change in the Company’s obligations under such leases. The Company elected to account for the deferred rent as variable lease payments, which resulted in a reduction of rent expense in the amount of $1.7 million for the three months ended March 31, 2021. Rent expense that was not forgiven will be recorded in future periods as these deferred payments are paid to the Company’s lessors.
The disruptions arising from the COVID-19 pandemic continue to have an impact on the Company’s financial condition, as it is unknown when the pandemic will end, when or how quickly the current travel restrictions, occupancy and other limitations will be further eased or cease to be necessary, and how these uncertainties will impact the Company’s business and the willingness of customers to spend on travel and entertainment. In 2020, in response to the COVID-19 pandemic, the Company implemented various mitigating actions to preserve liquidity, including delaying material capital expenditures, reducing operating expenses and implementing a cost reduction program with respect to discretionary expenditures. Such measures remained in effect during the three months ended March 31, 2021 and as of March 31, 2021, the Company’s $200 million revolving credit facility (the “Revolving Credit Facility”) was undrawn and available for borrowing. To further enhance its liquidity position or to finance any future acquisition or other business investment initiatives, the Company may obtain additional financing, which could consist of debt, convertible debt or equity financing from public or private credit and capital markets.
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, refer to the audited consolidated financial statements of the Company for the year ended December 31, 2020 and the notes thereto included in the Company’s Annual Report on Form 10-K (the “Annual Report”) previously filed with the SEC. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, which included 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 and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report.
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.
Significant Accounting Policies
There have been no changes to the significant accounting policies disclosed in the Company’s Annual Report.
Net Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing net income (loss) 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. In the event of a net loss, diluted shares are not considered because of their anti-dilutive effect. For the three months ended March 31, 2020, the effect of all potential common share equivalents was anti-dilutive due to the Company being in net loss position, and therefore, all such shares were excluded from the computation of diluted weighted average shares outstanding. The amount of potential common share equivalents excluded was 1,141,739 for the three months ended March 31, 2020.
Reclassification of Prior Year Balances
Reclassifications were made to the Company’s prior period consolidated financial statements to conform to the current period presentation, where applicable.
Accounting Standards Issued and Adopted
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU was intended to simplify the accounting for income taxes by removing certain exceptions for investments, intraperiod allocations, and interim calculations, and added guidance to reduce the complexity of applying Topic 740. The Company adopted the standard effective January 1, 2021, and the adoption did not have a material impact on the Company’s financial statements or disclosures.
Management does not believe that any other recently issued accounting standards that are not yet effective are likely to have a material impact on the Company’s financial statements.
Note 2 — Property and Equipment
Property and equipment, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
March 31, 2021
|
|
December 31, 2020
|
Land
|
$
|
125,240
|
|
|
$
|
125,240
|
|
Building and improvements
|
932,090
|
|
|
928,641
|
|
Furniture and equipment
|
241,406
|
|
|
246,292
|
|
Construction in process
|
8,741
|
|
|
6,714
|
|
Property and equipment
|
1,307,477
|
|
|
1,306,887
|
|
Accumulated depreciation
|
(353,330)
|
|
|
(331,137)
|
|
Property and equipment, net
|
$
|
954,147
|
|
|
$
|
975,750
|
|
Depreciation expense for property and equipment, including finance leases, was $25.0 million and $25.5 million for the three months ended March 31, 2021 and 2020, respectively.
The Company reviews the carrying amounts of its long-lived assets, other than goodwill and indefinite-lived intangible assets, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. While the impact of the COVID-19 pandemic on the Company’s operations is ongoing, management determined that there were no new indicators of impairment for the three months ended March 31, 2021 (including no new indicators of impairment with respect to the Colorado Belle due to no changes in management’s assumptions related to the cash flow projections for the property), and as such, the Company concluded that there was no impairment of the Company’s long-lived assets as of March 31, 2021.
To the extent the Company becomes aware of new facts and circumstances arising from the COVID-19 pandemic that impact its operations, the Company will revise its cash flow projections accordingly, as its estimates of future cash flows are highly dependent upon certain assumptions, including, but not limited to, the nature, timing, and extent of elimination or change of the restrictions on the Company’s operations and the extent and timing of the economic recovery globally, nationally, and specifically within the gaming industry. If such assumptions are not accurate, the Company may be required to record impairment charges in future periods, whether in connection with its regular review procedures, or earlier, if an indicator of an impairment is present prior to such evaluation.
Note 3 — Goodwill and Intangible Assets
The Company’s goodwill balance as of March 31, 2021 and December 31, 2020 was $158.4 million, of which $60.3 million related to the Casinos reportable segment and $98.1 million related to the Distributed Gaming reportable segment.
Intangible assets, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
(In thousands)
|
Useful Life (Years)
|
|
Gross Carrying Value
|
|
Cumulative Amortization
|
|
Cumulative Impairment
|
|
Intangible Assets, Net
|
Indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
Trade names
|
Indefinite
|
|
$
|
53,690
|
|
|
$
|
—
|
|
|
$
|
(6,890)
|
|
|
$
|
46,800
|
|
|
|
|
53,690
|
|
|
—
|
|
|
(6,890)
|
|
|
46,800
|
|
Amortizing intangible assets
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
4-16
|
|
81,105
|
|
|
(31,481)
|
|
|
—
|
|
|
49,624
|
|
Player relationships
|
2-14
|
|
42,990
|
|
|
(39,330)
|
|
|
—
|
|
|
3,660
|
|
Non-compete agreements
|
2-5
|
|
9,840
|
|
|
(7,735)
|
|
|
—
|
|
|
2,105
|
|
Gaming license (1)
|
15
|
|
2,100
|
|
|
(1,104)
|
|
|
—
|
|
|
996
|
|
In-place lease value
|
4
|
|
1,170
|
|
|
(986)
|
|
|
—
|
|
|
184
|
|
Leasehold interest
|
4
|
|
570
|
|
|
(543)
|
|
|
—
|
|
|
27
|
|
Other
|
4-25
|
|
1,814
|
|
|
(1,300)
|
|
|
—
|
|
|
514
|
|
|
|
|
139,589
|
|
|
(82,479)
|
|
|
—
|
|
|
57,110
|
|
Balance, March 31, 2021
|
|
|
$
|
193,279
|
|
|
$
|
(82,479)
|
|
|
$
|
(6,890)
|
|
|
$
|
103,910
|
|
(1)Relates to Rocky Gap.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(In thousands)
|
Useful Life (Years)
|
|
Gross Carrying Value
|
|
Cumulative Amortization
|
|
Cumulative Impairment
|
|
Intangible Assets, Net
|
Indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
Trade names
|
Indefinite
|
|
$
|
53,690
|
|
|
$
|
—
|
|
|
$
|
(6,890)
|
|
|
$
|
46,800
|
|
|
|
|
53,690
|
|
|
—
|
|
|
(6,890)
|
|
|
46,800
|
|
Amortizing intangible assets
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
4-16
|
|
81,105
|
|
|
(30,012)
|
|
|
—
|
|
|
51,093
|
|
Player relationships
|
2-14
|
|
42,990
|
|
|
(39,116)
|
|
|
—
|
|
|
3,874
|
|
Non-compete agreements
|
2-5
|
|
9,840
|
|
|
(7,385)
|
|
|
—
|
|
|
2,455
|
|
Gaming license (1)
|
15
|
|
2,100
|
|
|
(1,070)
|
|
|
—
|
|
|
1,030
|
|
In-place lease value
|
4
|
|
1,170
|
|
|
(918)
|
|
|
—
|
|
|
252
|
|
Leasehold interest
|
4
|
|
570
|
|
|
(504)
|
|
|
—
|
|
|
66
|
|
Other
|
4-25
|
|
1,814
|
|
|
(1,275)
|
|
|
—
|
|
|
539
|
|
|
|
|
139,589
|
|
|
(80,280)
|
|
|
—
|
|
|
59,309
|
|
Balance, December 31, 2020
|
|
|
$
|
193,279
|
|
|
$
|
(80,280)
|
|
|
$
|
(6,890)
|
|
|
$
|
106,109
|
|
(1)Relates to Rocky Gap.
Total amortization expense related to intangible assets was $2.2 million and $5.6 million for the three months ended March 31, 2021 and 2020, respectively.
The Company tests goodwill and indefinite-lived intangible assets for impairment annually, in the last quarter of the year, unless events or changes in circumstances indicate that it is more likely than not that the carrying value of a reporting unit exceeds its fair value. Finite-lived intangible assets are evaluated for potential impairment whenever there is an indicator that the carrying value of an asset group may not be recoverable. While the impact of the COVID-19 pandemic on the Company’s operations is ongoing, management determined that there were no new indicators of impairment for the three months ended March 31, 2021 and the Company concluded that there was no impairment of the Company’s goodwill and intangible assets as of March 31, 2021.
During the first quarter of 2020, the Company concluded that the COVID-19 pandemic had an adverse impact on its operations and financial results, particularly within the Company’s Casinos segment due to the mandatory property closures, which management considered an indicator of impairment, and necessitated a performance of interim qualitative and quantitative impairment tests. The Company’s interim assessment resulted in recognition of a non-cash impairment of its Casinos segment goodwill of $6.5 million.
The estimated fair value of goodwill was determined using discounted cash flow models which utilized Level 3 inputs as follows: discount rate of 12.0%; long-term revenue growth rate of 3.0%. The impairment charge is included in “Impairment of goodwill and intangible assets” on the consolidated statements of operations.
To the extent the Company becomes aware of new facts and circumstances arising from the COVID-19 pandemic that impact its operations, the Company will revise its cash flow projections accordingly, as its estimates of future cash flows are highly dependent upon certain assumptions, including, but not limited to, the nature, timing, and extent of elimination or change of the restrictions on the Company’s operations and the extent and timing of the economic recovery globally, nationally, and specifically within the gaming industry. If such assumptions are not accurate, the Company may be required to record impairment charges in future periods, whether in connection with its regular review procedures, or earlier, if an indicator of an impairment is present prior to such evaluation.
Note 4 — Accrued Liabilities
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
March 31, 2021
|
|
December 31, 2020
|
Interest
|
$
|
13,105
|
|
|
$
|
6,118
|
|
Gaming liabilities
|
12,229
|
|
|
12,073
|
|
Accrued taxes, other than income taxes
|
8,148
|
|
|
6,152
|
|
Other accrued liabilities
|
4,355
|
|
|
4,751
|
|
Deposits
|
2,528
|
|
|
1,211
|
|
Total current accrued liabilities
|
$
|
40,365
|
|
|
$
|
30,305
|
|
Note 5 — Long-Term Debt
Long-term debt, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
March 31, 2021
|
|
December 31, 2020
|
Term Loan
|
$
|
772,000
|
|
|
$
|
772,000
|
|
2026 Unsecured Notes
|
375,000
|
|
|
375,000
|
|
Finance lease liabilities
|
8,337
|
|
|
9,182
|
|
Notes payable
|
2,424
|
|
|
4,373
|
|
Total long-term debt and finance leases
|
1,157,761
|
|
|
1,160,555
|
|
Unamortized discount
|
(14,727)
|
|
|
(15,570)
|
|
Unamortized debt issuance costs
|
(6,560)
|
|
|
(6,873)
|
|
Total long-term debt and finance leases after debt issuance costs and discount
|
1,136,474
|
|
|
1,138,112
|
|
Current portion of long-term debt and finance leases
|
(11,450)
|
|
|
(11,142)
|
|
Long-term debt, net and finance leases
|
$
|
1,125,024
|
|
|
$
|
1,126,970
|
|
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 (the “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 increasing the total Credit Facility capacity to $1.0 billion.
As of March 31, 2021, the Company had $772 million in principal amount of outstanding Term Loan borrowings under its Credit Facility, no outstanding letters of credit and no borrowings under the Revolving Credit Facility, such that full borrowing availability of $200 million under the Revolving Credit Facility was available to the Company for re-borrowing.
The Revolving Credit Facility matures on October 20, 2022, and the Term Loan matures on October 20, 2024. The Term Loan 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.
The Company was in compliance with its financial and other covenants under the Credit Facility as of March 31, 2021.
Senior Unsecured Notes
On April 15, 2019, the Company issued $375 million in principal amount of 7.625% Senior Notes due 2026 (“2026 Unsecured Notes”) in a private placement to institutional buyers at face value. The 2026 Unsecured Notes bear interest at 7.625%, payable semi-annually on April 15th and October 15th of each year.
For the three months ended March 31, 2021, the weighted-average effective interest rate on the Company’s outstanding borrowings under the Credit Facility was approximately 3.75% and under the Credit Facility and the 2026 Unsecured Notes (collectively) was approximately 5.02%.
Note 6 — Shareholders’ 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 million additional shares of common stock. 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. There were no repurchase transactions under the March 12, 2019 authorization during the three months ended March 31, 2021.
Stock Options
The following table summarizes the Company’s stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Shares
|
|
Weighted-Average Exercise Price
|
Outstanding at January 1, 2021
|
2,891,341
|
|
|
$
|
11.07
|
|
Granted
|
—
|
|
|
$
|
—
|
|
Exercised
|
(34,334)
|
|
|
$
|
14.90
|
|
Cancelled
|
—
|
|
|
$
|
—
|
|
Expired
|
—
|
|
|
$
|
—
|
|
Outstanding at March 31, 2021
|
2,857,007
|
|
|
$
|
11.03
|
|
Exercisable at March 31, 2021
|
2,857,007
|
|
|
$
|
11.03
|
|
Share-based compensation expense related to stock options was $0.2 million and $0.6 million for the three months ended March 31, 2021 and 2020. The Company did not have any remaining unrecognized share-based compensation expense related to stock options as of March 31, 2021. The unrecognized share-based compensation expense related to stock options was $1.5 million as of March 31, 2020, which was expected to be recognized over a weighted-average period of 0.8 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
|
|
|
Shares
|
|
Weighted-Average Grant Date Fair Value
|
|
Shares (1)
|
|
Weighted-Average Grant Date Fair Value
|
Outstanding at January 1, 2021
|
|
943,957
|
|
|
$
|
12.06
|
|
|
743,719
|
|
|
$
|
13.82
|
|
Granted
|
|
211,073
|
|
|
$
|
29.00
|
|
|
119,073
|
|
|
$
|
29.00
|
|
Vested
|
|
(313,652)
|
|
|
$
|
13.72
|
|
|
(89,920)
|
|
|
$
|
25.73
|
|
Cancelled
|
|
(2,606)
|
|
|
$
|
11.77
|
|
|
(77,725)
|
|
|
$
|
25.23
|
|
Outstanding at March 31, 2021
|
|
838,772
|
|
|
$
|
15.71
|
|
|
695,147
|
|
|
$
|
13.61
|
|
(1) 62,791 of the 77,725 PSUs cancelled during the three months ended March 31, 2021 related to PSUs granted in November 2017, for which applicable performance goals were not met. 14,934 of the 77,725 PSUs cancelled during the period related to PSUs granted in March 2019 (the “2019 PSU Awards”). The Company’s financial results for the applicable performance goals were certified during the three months ended March 31, 2021, which resulted in the
reduction of the shares subject to the 2019 PSU Awards from 204,580 to 189,646. In addition, 18,452 of the shares under the 2019 PSU Awards vested during the three months ended March 31, 2021.
71,468 of the PSUs included in the outstanding balance at January 1, 2021 represented PSUs granted in March 2018 (the “2018 PSU Awards”). The Company’s financial results for the applicable performance goals were certified during the three months ended March 31, 2020, which resulted in the reduction of the shares subject to the 2018 PSU Awards during the three months ended March 31, 2020, and all of the 71,468 remaining shares under the 2018 PSU Awards vested during the three months ended March 31, 2021.
The number of outstanding PSUs for the remainder of the PSUs included in the outstanding balance at March 31, 2021 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 $1.3 million and $1.0 million for the three months ended March 31, 2021 and 2020, respectively. Share-based compensation expense related to PSUs was $1.2 million and $0.5 million for the three months ended March 31, 2021 and 2020, respectively.
As of March 31, 2021, there was $11.3 million and $6.2 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 2.4 years for both RSUs and PSUs. As of March 31, 2020, there was $8.6 million and $5.8 million of unamortized share-based compensation expense related to RSUs and PSUs, respectively, which was expected to be recognized over a weighted-average period of 2.6 years and 2.4 years for RSUs and PSUs, respectively.
As of March 31, 2021, a total of 2,299,828 shares of the Company’s common stock remained available for grants of awards under the Golden Entertainment, Inc. 2015 Incentive Award Plan, which includes the annual increase in the number of shares available for grant on January 1, 2021 of 1,126,361 shares.
Note 7 — Income Tax
The Company’s effective income tax rate was (2.9)% and (0.2)% for the three months ended March 31, 2021 and 2020, respectively.
Income tax benefit of $0.3 million for the three months ended March 31, 2021 was primarily due to the change in valuation allowance against the Company’s deferred tax assets during the first three months of 2021. Income tax expense of $0.1 million for the three months ended March 31, 2020 was primarily due to the change in valuation allowance against the Company’s deferred tax assets during the first three months of 2020.
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 March 31, 2021, the Company’s 2017 and 2018 federal tax returns were under audit by the IRS.
As of March 31, 2021, the Company had no material uncertain tax positions.
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.
•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 following table summarizes the fair value measurement of the Company’s long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
(In thousands)
|
Carrying Amount
|
|
Fair Value
|
|
Fair Value Hierarchy
|
Term Loan
|
$
|
772,000
|
|
|
$
|
764,280
|
|
|
Level 2
|
2026 Unsecured Notes
|
375,000
|
|
|
398,888
|
|
|
Level 2
|
Finance lease liabilities
|
8,337
|
|
|
8,337
|
|
|
Level 3
|
Notes payable
|
2,424
|
|
|
2,424
|
|
|
Level 3
|
Total debt
|
$
|
1,157,761
|
|
|
$
|
1,173,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(In thousands)
|
Carrying Amount
|
|
Fair Value
|
|
Fair Value Hierarchy
|
Term Loan
|
$
|
772,000
|
|
|
$
|
758,490
|
|
|
Level 2
|
2026 Unsecured Notes
|
375,000
|
|
|
402,638
|
|
|
Level 2
|
Finance lease liabilities
|
9,182
|
|
|
9,182
|
|
|
Level 3
|
Notes payable
|
4,373
|
|
|
4,373
|
|
|
Level 3
|
Total debt
|
$
|
1,160,555
|
|
|
$
|
1,174,683
|
|
|
|
The estimated fair value of the Company’s Term Loan and 2026 Unsecured Notes is based on a relative value analysis performed as of March 31, 2021 and December 31, 2020. The finance lease liabilities and notes payable 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.
Note 9 — Commitments and Contingencies
Participation Agreements and Space Lease Agreements with Revenue Share Provisions
The Company enters into slot placement contracts in the form of participation agreements and space lease agreements with revenue share provisions. Under participation agreements, the business location holds the applicable gaming license and retains a percentage of the gaming revenue generated from the Company’s slots. Space lease agreements with revenue share provisions are a hybrid model that has both space lease and participation elements and the Company pays the business a percentage of the gaming revenue generated from the Company’s slots placed at the location, rather than a fixed monthly rental fee. Under such arrangements, the Company holds the applicable gaming license to conduct gaming at the location and the business location is required to obtain separate regulatory approval to receive a percentage of the gaming revenue. The aggregate contingent payments recognized by the Company as gaming expenses under participation agreements and space lease agreements with revenue share provisions were $54.1 million and $36.0 million for the three months ended March 31, 2021 and 2020.
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 January 2021, the Company was affected by a ransomware cyber-attack that temporarily disrupted the Company’s access to certain information located on the Company’s network and incurred expenses relating thereto. The Company’s financial information and business operations were not materially affected. The Company implemented a variety of measures to further enhance its cybersecurity protections and minimize the impact of any future cyber incidents. The Company has insurance related
to this event and is seeking to recover costs it incurred to remediate this matter and will record insurance recovery when collection is probable.
Note 10 — 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, impairment of goodwill and intangible assets, severance expenses, preopening and related expenses, gain or loss on disposal of assets, share-based compensation expenses, change in fair value of derivative, and other non-cash charges, 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 March 31, 2021
|
(In thousands)
|
|
Casinos
|
|
Distributed Gaming
|
|
Corporate and Other
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
Gaming
|
|
$
|
81,394
|
|
|
$
|
95,606
|
|
|
$
|
—
|
|
|
$
|
177,000
|
|
Food and beverage
|
|
21,920
|
|
|
11,884
|
|
|
—
|
|
|
33,804
|
|
Rooms
|
|
18,398
|
|
|
—
|
|
|
—
|
|
|
18,398
|
|
Other
|
|
7,738
|
|
|
2,419
|
|
|
337
|
|
|
10,494
|
|
Total revenues
|
|
$
|
129,450
|
|
|
$
|
109,909
|
|
|
$
|
337
|
|
|
$
|
239,696
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
29,004
|
|
|
$
|
15,010
|
|
|
$
|
(33,394)
|
|
|
$
|
10,620
|
|
Depreciation and amortization
|
|
21,346
|
|
|
5,214
|
|
|
626
|
|
|
27,186
|
|
Change in non-cash lease expense
|
|
137
|
|
|
279
|
|
|
23
|
|
|
439
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
3,005
|
|
|
3,005
|
|
(Gain) loss on disposal of assets
|
|
(20)
|
|
|
229
|
|
|
—
|
|
|
209
|
|
Preopening and related expenses (1)
|
|
—
|
|
|
—
|
|
|
120
|
|
|
120
|
|
Other, net
|
|
456
|
|
|
74
|
|
|
1,638
|
|
|
2,168
|
|
Interest expense, net
|
|
157
|
|
|
74
|
|
|
15,817
|
|
|
16,048
|
|
Income tax benefit
|
|
—
|
|
|
—
|
|
|
(297)
|
|
|
(297)
|
|
Adjusted EBITDA
|
|
$
|
51,080
|
|
|
$
|
20,880
|
|
|
$
|
(12,462)
|
|
|
$
|
59,498
|
|
(1)Preopening and related expenses consist of labor, food, utilities, training, initial licensing, rent and organizational costs incurred in connection with the opening of tavern and casino locations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
(In thousands)
|
|
Casinos
|
|
Distributed Gaming
|
|
Corporate and Other
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
Gaming
|
|
$
|
61,905
|
|
|
$
|
65,310
|
|
|
$
|
—
|
|
|
$
|
127,215
|
|
Food and beverage
|
|
29,805
|
|
|
11,742
|
|
|
—
|
|
|
41,547
|
|
Rooms
|
|
25,605
|
|
|
—
|
|
|
—
|
|
|
25,605
|
|
Other
|
|
10,655
|
|
|
1,932
|
|
|
203
|
|
|
12,790
|
|
Total revenues
|
|
$
|
127,970
|
|
|
$
|
78,984
|
|
|
$
|
203
|
|
|
$
|
207,157
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(2,938)
|
|
|
$
|
604
|
|
|
$
|
(30,286)
|
|
|
$
|
(32,620)
|
|
Depreciation and amortization
|
|
24,713
|
|
|
5,865
|
|
|
578
|
|
|
31,156
|
|
Change in non-cash lease expense
|
|
143
|
|
|
(6)
|
|
|
24
|
|
|
161
|
|
Impairment of goodwill and intangible assets
|
|
6,461
|
|
|
—
|
|
|
—
|
|
|
6,461
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
2,246
|
|
|
2,246
|
|
Loss (gain) on disposal of assets
|
|
627
|
|
|
(38)
|
|
|
—
|
|
|
589
|
|
Preopening and related expenses (1)
|
|
225
|
|
|
—
|
|
|
105
|
|
|
330
|
|
Severance expenses
|
|
2,417
|
|
|
478
|
|
|
81
|
|
|
2,976
|
|
Other, net
|
|
47
|
|
|
197
|
|
|
113
|
|
|
357
|
|
Interest expense, net
|
|
245
|
|
|
15
|
|
|
18,486
|
|
|
18,746
|
|
Change in fair value of derivative
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Income tax provision
|
|
—
|
|
|
—
|
|
|
52
|
|
|
52
|
|
Adjusted EBITDA
|
|
$
|
31,940
|
|
|
$
|
7,115
|
|
|
$
|
(8,600)
|
|
|
$
|
30,455
|
|
(1)Preopening and related expenses consist of labor, food, utilities, training, initial licensing, rent and organizational costs incurred in connection with the opening of tavern and casino locations.
Assets
The Company’s assets by segment consisted of the following amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Casinos
|
|
Distributed Gaming
|
|
Corporate and Other
|
|
Consolidated
|
Balance at March 31, 2021
|
$
|
1,099,796
|
|
|
$
|
448,452
|
|
|
$
|
66,945
|
|
|
$
|
1,615,193
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
$
|
1,085,510
|
|
|
$
|
430,791
|
|
|
$
|
54,648
|
|
|
$
|
1,570,949
|
|
Note 11 — Related Party Transactions
As of March 31, 2021, 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 lease for the Company’s office headquarters building expires on December 31, 2030. The rent expense for the office headquarters building was $0.3 million for each of the three months ended March 31, 2021 and 2020. No amount was due and payable by the Company as of March 31, 2021 and December 31, 2020 under this lease arrangement. Additionally, a portion of the office headquarters building was sublet to Sartini Enterprises, Inc., a company controlled by Mr. Sartini. Rental income for each of the three months ended March 31, 2021 and 2020 for the sublet portion of the office headquarters building was insignificant. No amount was owed to the Company under such sublease as of March 31, 2021 and December 31, 2020. In addition, Golden and Sartini Enterprises, Inc. participate in certain cost-sharing arrangements. The amount due and payable by the Company under such arrangements was insignificant as of March 31, 2021 and December 31, 2020. 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
commenced in August 2020 and expires on December 31, 2030. The rent expense for the space was less than $0.1 million for the three months ended March 31, 2021. Additionally, the lease agreement includes a right of first refusal for additional space on the second floor of the building.
From time to time, the Company’s executive officers and employees use a private aircraft for business purposes. The aircraft is owned by or leased to Sartini Enterprises, Inc., pursuant to aircraft timesharing, co-user and cost-sharing agreements between the Company and Sartini Enterprises, Inc., all of which have been approved by the Audit Committee of the Board of Directors. The aircraft timesharing, co-user and cost-sharing agreements specify the maximum expense reimbursement that Sartini Enterprises, Inc. can charge the Company under the applicable regulations of the Federal Aviation Administration for the use of the aircraft and the flight crew. Such costs include fuel, landing fees, hangar and tie-down costs away from the aircraft’s operating base, flight planning and weather contract services, crew costs and other related expenses. The Company’s compliance department regularly reviews these reimbursements. The Company paid $0.2 million and $0.1 million for the three months ended March 31, 2021 and 2020, respectively, under the aircraft time-sharing, co-user and cost-sharing agreements with Sartini Enterprises, Inc. As of March 31, 2021, less than $0.1 million was owed by the Company under such agreements and no amount was owed to the Company under such agreements as of December 31, 2020.
Note 12 — 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 three months ended March 31, 2021.