Filed by Twin River Worldwide Holdings,
Inc.
Pursuant to Rule 425 under the Securities
Act of 1933, as amended
Subject Company: Dover Downs Gaming &
Entertainment, Inc.
Commission File No.: 001-16791
Twin River
Worldwide Holdings, Inc.
Condensed
Consolidated Balance Sheets
(In thousands,
except share amounts)
(Unaudited)
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
78,589
|
|
|
$
|
85,814
|
|
Restricted
cash
|
|
|
7,333
|
|
|
|
7,402
|
|
Accounts
receivable, net
|
|
|
25,262
|
|
|
|
18,311
|
|
Receivables
from related parties
|
|
|
4,406
|
|
|
|
5,396
|
|
Inventory
|
|
|
5,915
|
|
|
|
7,260
|
|
Prepaid
expenses and other current assets
|
|
|
12,291
|
|
|
|
9,869
|
|
Total current assets
|
|
|
133,796
|
|
|
|
134,052
|
|
|
|
|
|
|
|
|
|
|
Property and equipment,
net
|
|
|
414,715
|
|
|
|
335,548
|
|
Goodwill
|
|
|
132,035
|
|
|
|
132,035
|
|
Intangible assets, net
|
|
|
111,471
|
|
|
|
115,367
|
|
Deferred financing fees,
net
|
|
|
714
|
|
|
|
1,132
|
|
Other
assets
|
|
|
981
|
|
|
|
-
|
|
Total
assets
|
|
$
|
793,712
|
|
|
$
|
718,134
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current
portion of term loan
|
|
$
|
3,595
|
|
|
$
|
33,325
|
|
Accounts
payable
|
|
|
19,774
|
|
|
|
25,062
|
|
Accrued
liabilities
|
|
|
68,699
|
|
|
|
57,849
|
|
Total current liabilities
|
|
|
92,068
|
|
|
|
116,236
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
44,042
|
|
|
|
46,521
|
|
Deferred tax liability
|
|
|
14,295
|
|
|
|
11,646
|
|
Revolver
|
|
|
61,000
|
|
|
|
20,000
|
|
Term
loan, net of current portion, discount and deferred financing fees
|
|
|
336,423
|
|
|
|
337,875
|
|
Total
liabilities
|
|
|
547,828
|
|
|
|
532,278
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01, at fair value
at September 30, 2018 and December 31, 2017; 89,306 and 83,022 shares subject to possible redemption as of September 30, 2018
and December 31, 2017, respectively
|
|
|
11,312
|
|
|
|
9,053
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01; 100,000,000
shares authorized; 9,415,259 and 9,323,259 shares issued as of September 30, 2018 and December 31, 2017, respectively; 9,141,926
and 9,049,926 shares outstanding as of September 30, 2018 and December 31, 2017, respectively, net of treasury stock
|
|
|
91
|
|
|
|
90
|
|
Additional paid in capital
|
|
|
78,216
|
|
|
|
68,182
|
|
Treasury Stock, at cost, 273,333 shares as
of September 30, 2018 and December 31, 2017
|
|
|
(22,275
|
)
|
|
|
(22,275
|
)
|
Retained
earnings
|
|
|
178,540
|
|
|
|
130,806
|
|
Total
shareholders' equity
|
|
|
234,572
|
|
|
|
176,803
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
793,712
|
|
|
$
|
718,134
|
|
The accompanying
notes are an integral part of these unaudited condensed consolidated financial statements.
Twin River
Worldwide Holdings, Inc.
Condensed
Consolidated Statements of Operations and Comprehensive Income
(In thousands,
except share and per share amounts)
(Unaudited)
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming
|
|
$
|
82,067
|
|
|
$
|
79,205
|
|
|
$
|
243,915
|
|
|
$
|
239,506
|
|
Racing
|
|
|
3,286
|
|
|
|
3,451
|
|
|
|
10,440
|
|
|
|
10,882
|
|
Hotel
|
|
|
5,712
|
|
|
|
5,353
|
|
|
|
15,652
|
|
|
|
15,316
|
|
Food and
beverage
|
|
|
12,129
|
|
|
|
11,677
|
|
|
|
35,915
|
|
|
|
36,069
|
|
Other
|
|
|
7,300
|
|
|
|
6,876
|
|
|
|
20,193
|
|
|
|
19,726
|
|
Net revenue
|
|
|
110,494
|
|
|
|
106,562
|
|
|
|
326,115
|
|
|
|
321,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming
|
|
|
17,906
|
|
|
|
16,682
|
|
|
|
51,660
|
|
|
|
49,117
|
|
Racing
|
|
|
2,317
|
|
|
|
2,357
|
|
|
|
7,041
|
|
|
|
7,568
|
|
Hotel
|
|
|
2,098
|
|
|
|
1,924
|
|
|
|
5,914
|
|
|
|
5,460
|
|
Food and
beverage
|
|
|
9,656
|
|
|
|
9,128
|
|
|
|
28,324
|
|
|
|
28,553
|
|
Advertising,
general and administrative
|
|
|
40,875
|
|
|
|
40,532
|
|
|
|
122,516
|
|
|
|
118,107
|
|
Expansion
and pre-opening
|
|
|
2,139
|
|
|
|
62
|
|
|
|
2,624
|
|
|
|
95
|
|
Newport
Grand disposal loss
|
|
|
656
|
|
|
|
-
|
|
|
|
6,541
|
|
|
|
-
|
|
Depreciation
and amortization
|
|
|
5,196
|
|
|
|
5,275
|
|
|
|
15,543
|
|
|
|
16,866
|
|
Total
operating costs and expenses
|
|
|
80,843
|
|
|
|
75,960
|
|
|
|
240,163
|
|
|
|
225,766
|
|
Income from operations
|
|
|
29,651
|
|
|
|
30,602
|
|
|
|
85,952
|
|
|
|
95,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
42
|
|
|
|
50
|
|
|
|
120
|
|
|
|
142
|
|
Interest
expense, net of amounts capitalized
|
|
|
(5,406
|
)
|
|
|
(5,924
|
)
|
|
|
(16,251
|
)
|
|
|
(17,899
|
)
|
Total other expense
|
|
|
(5,364
|
)
|
|
|
(5,874
|
)
|
|
|
(16,131
|
)
|
|
|
(17,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision
for income taxes
|
|
|
24,287
|
|
|
|
24,728
|
|
|
|
69,821
|
|
|
|
77,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
(7,913
|
)
|
|
|
(11,320
|
)
|
|
|
(20,513
|
)
|
|
|
(34,883
|
)
|
Net income
|
|
|
16,374
|
|
|
|
13,408
|
|
|
|
49,308
|
|
|
|
43,093
|
|
Deemed
dividends related to changes in fair value of common stock subject to possible redemption
|
|
|
1,036
|
|
|
|
(559
|
)
|
|
|
(1,574
|
)
|
|
|
(1,676
|
)
|
Net
income applicable to common stockholders
|
|
$
|
17,410
|
|
|
$
|
12,849
|
|
|
$
|
47,734
|
|
|
$
|
41,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share,
basic
|
|
$
|
1.89
|
|
|
$
|
1.41
|
|
|
$
|
5.18
|
|
|
$
|
4.54
|
|
Weighted average common
shares outstanding, basic
|
|
|
9,231,232
|
|
|
|
9,119,204
|
|
|
|
9,222,792
|
|
|
|
9,118,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share,
diluted
|
|
$
|
1.81
|
|
|
$
|
1.33
|
|
|
$
|
4.95
|
|
|
$
|
4.31
|
|
Weighted average common
shares outstanding, diluted
|
|
|
9,643,716
|
|
|
|
9,626,892
|
|
|
|
9,643,288
|
|
|
|
9,606,052
|
|
Note: Net income
equals comprehensive income for all periods presented.
The accompanying
notes are an integral part of these unaudited condensed consolidated financial statements.
Twin River
Worldwide Holdings, Inc.
Condensed
Consolidated Statements of Changes in Shareholders’ Equity
(In thousands,
except share amounts)
(Unaudited)
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Treasury
|
|
|
Retained
|
|
|
Total
Shareholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stock
|
|
|
Earnings
|
|
|
Equity
|
|
Balance as
of December 31, 2017
|
|
|
9,049,926
|
|
|
$
|
90
|
|
|
$
|
68,182
|
|
|
$
|
(22,275
|
)
|
|
$
|
130,806
|
|
|
$
|
176,803
|
|
Stock
option exercised via repayment of non-recourse notes
|
|
|
92,000
|
|
|
|
1
|
|
|
|
9,020
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,021
|
|
Share-based
compensation - equity awards
|
|
|
-
|
|
|
|
-
|
|
|
|
1,699
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,699
|
|
Release
of restricted units
|
|
|
6,284
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common
stock subject to possible redemption
|
|
|
(6,284
|
)
|
|
|
-
|
|
|
|
(685
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(685
|
)
|
Deemed
dividends related to changes in fair value of common stock subject to possible redemption
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,574
|
)
|
|
|
(1,574
|
)
|
Net
income
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,308
|
|
|
|
49,308
|
|
Balance
as of September 30, 2018
|
|
|
9,141,926
|
|
|
$
|
91
|
|
|
$
|
78,216
|
|
|
$
|
(22,275
|
)
|
|
$
|
178,540
|
|
|
$
|
234,572
|
|
The accompanying
notes are an integral part of these unaudited condensed consolidated financial statements.
Twin River
Worldwide Holdings, Inc.
Condensed
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
Nine
Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
49,308
|
|
|
$
|
43,093
|
|
Adjustments to reconcile
net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
of property and equipment
|
|
|
11,438
|
|
|
|
12,679
|
|
Amortization of intangibles
|
|
|
4,105
|
|
|
|
4,187
|
|
Share-based
compensation - liability awards
|
|
|
5,652
|
|
|
|
12,955
|
|
Share-based
compensation - equity awards
|
|
|
1,699
|
|
|
|
842
|
|
Amortization
of deferred financing fees
|
|
|
1,787
|
|
|
|
1,703
|
|
Amortization
of original issue discount
|
|
|
693
|
|
|
|
887
|
|
Bad debt
expense
|
|
|
182
|
|
|
|
111
|
|
Deferred
income taxes
|
|
|
2,649
|
|
|
|
1,354
|
|
Newport
Grand disposal loss
|
|
|
6,541
|
|
|
|
-
|
|
Gain on
disposal of property and equipment
|
|
|
-
|
|
|
|
(24
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(7,133
|
)
|
|
|
(3,184
|
)
|
Inventory
|
|
|
1,345
|
|
|
|
163
|
|
Prepaid
expenses and other current assets
|
|
|
(2,422
|
)
|
|
|
3,362
|
|
Accounts
payable
|
|
|
1,066
|
|
|
|
(1,548
|
)
|
Accrued
liabilities
|
|
|
5,135
|
|
|
|
99
|
|
Net
cash provided by operating activities
|
|
|
82,045
|
|
|
|
76,679
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
Deposit
paid
|
|
|
(981
|
)
|
|
|
-
|
|
Repayment
of loans from officers and directors
|
|
|
1,073
|
|
|
|
-
|
|
Proceeds
from sale of land and building for Newport Grand disposal
|
|
|
7,108
|
|
|
|
-
|
|
Proceeds
from sale of property and equipment
|
|
|
5
|
|
|
|
20
|
|
Capital
expenditures, excluding Tiverton Casino Hotel and new hotel at Twin River Casino
|
|
|
(5,107
|
)
|
|
|
(5,758
|
)
|
Capital
expenditures - Tiverton Casino Hotel
|
|
|
(79,010
|
)
|
|
|
(18,449
|
)
|
Capital
expenditures - new hotel at Twin River Casino
|
|
|
(20,781
|
)
|
|
|
(1,079
|
)
|
Payments
associated with gaming license
|
|
|
(209
|
)
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(97,902
|
)
|
|
|
(25,266
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
Revolver
borrowing
|
|
|
41,000
|
|
|
|
-
|
|
Revolver
repayments
|
|
|
-
|
|
|
|
(25,000
|
)
|
Term
loan repayments
|
|
|
(33,327
|
)
|
|
|
(10,364
|
)
|
Payment
of financing fees
|
|
|
-
|
|
|
|
(100
|
)
|
Stock
options exercised via repayment of non-recourse notes
|
|
|
890
|
|
|
|
-
|
|
Net
cash provided by (used in) financing activities
|
|
|
8,563
|
|
|
|
(35,464
|
)
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents and restricted cash
|
|
|
(7,294
|
)
|
|
|
15,949
|
|
Cash
and equivalents and restricted cash, beginning of period
|
|
|
93,216
|
|
|
|
61,802
|
|
Cash
and equivalents and restricted cash, end of period
|
|
$
|
85,922
|
|
|
$
|
77,751
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure
of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for
interest
|
|
$
|
17,005
|
|
|
$
|
15,187
|
|
Cash paid for income taxes
|
|
$
|
17,017
|
|
|
$
|
31,114
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing
and financing activities:
|
|
|
|
|
|
|
|
|
Unpaid property and equipment
|
|
$
|
24,219
|
|
|
$
|
12,719
|
|
Intrinsic value of stock
option exercised via repayment of non-recourse note
|
|
$
|
8,131
|
|
|
$
|
-
|
|
Deemed dividends related
to changes in fair value of common stock subject to
possible redemption
|
|
$
|
2,259
|
|
|
$
|
2,002
|
|
The accompanying
notes are an integral part of these unaudited condensed consolidated financial statements.
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
1. General
Information
Description
of Business
Twin River
Worldwide Holdings, Inc. (the “Company”) was formed on March 1, 2004. Twin River Management Group, Inc. (“TRMG”),
is a wholly owned subsidiary of the Company and is the parent company of UTGR, Inc. (“Twin River Casino”), Premier
Entertainment Biloxi LLC and subsidiaries (“Hard Rock Biloxi”), Premier Entertainment II, LLC (“Newport Grand”),
Mile High USA, Inc. and subsidiaries (“Mile High USA”) and Twin River-Tiverton, LLC (“Tiverton Casino Hotel”),
all of which are wholly owned subsidiaries of TRMG.
Twin River
Casino is located in Lincoln, Rhode Island and is authorized to house a maximum of 4,752 Video Lottery Terminals (“VLTs”)
and traditional casino table games on behalf of the State of Rhode Island. Twin River Casino is entitled to a blended 27.8% share
of VLT revenue when the maximum number of VLTs are in operation and is entitled to an 83.5% share of revenue from table games
as of September 30, 2018. As of September 30, 2018, the property houses approximately 4,200 VLTs, and is entitled to a 28.0%
share of VLT revenue on those machines and offers approximately 100 traditional table games, 25 poker tables and 30 stadium gaming
positions in addition to simulcast racing, various food and beverage venues and a multi-purpose event center.
Hard Rock Biloxi’s
operations consist of a casino and hotel located in Biloxi, Mississippi. As of September 30, 2018, the property houses approximately
1,200 slot machines, 50 table games and two hotel towers containing 479 guest rooms and suites, a pool with swim up bar and a
spa. The property also features a variety of restaurants and nightlife options.
On April 19,
2015, TRMG formed Premier Entertainment II, LLC and on July 14, 2015, Premier Entertainment II LLC acquired substantially
all of the assets of Newport Grand Casino located in Newport, Rhode Island. Newport Grand housed approximately 1,100 VLTs on behalf
of the State of Rhode Island and also offered simulcast wagering as well as a restaurant and bar. Until Newport Grand closed on
August 28, 2018, Newport Grand was entitled to a 28.0% share of VLT revenue. The Company has included the results of Newport Grand
in its condensed consolidated financial statements from the date of acquisition until the date of closing. See Note 3.
On February 3,
2015, TRMG formed Border Investments LLC for the purpose of acquiring the rights to land located in Tiverton, Rhode Island and
subsequently proposed a relocation of the existing Newport Grand gaming license to a new casino to be developed in that town.
On November 9, 2015, TRMG formed Twin River-Tiverton, LLC to develop and house the new casino. The Tiverton casino was approved
by a majority vote in both the State of Rhode Island and the Town of Tiverton on November 8, 2016. During 2017, the land
acquired by Border Investments LLC was transferred to Twin River-Tiverton, LLC and Border Investments LLC was dissolved. On September
1, 2018, the casino and hotel located in Tiverton, Rhode Island (“Tiverton Casino Hotel”) began operations. As of
September 30, 2018, the property houses approximately 1,000 VLTs and 35 table games on behalf of the State of Rhode Island. Tiverton
Casino Hotel is entitled to a 28.0% share of VLT revenue and an 83.5% share of revenue from table games as of September 30, 2018.
The Tiverton Casino Hotel has an 83-room hotel.
Mile High USA’s
operations consist of one horse racing track and simulcast wagering at Arapahoe Park Racetrack in Aurora, Colorado, as well as
simulcast horse and dog wagering at its licensed Off-Track Betting (“OTB”) sites.
The Company
has two reportable segments which are operated and managed regionally as follows: 1) Rhode Island and 2) Biloxi. See Note
15.
On July 22,
2018, the Company entered into a Transaction Agreement (the “Agreement”) with Dover Downs Gaming & Entertainment,
Inc. (“Dover Downs”), and Double Acquisition Corp., an indirect wholly-owned subsidiary of the Company (“Merger
Sub”), pursuant to which, among other things and subject to the conditions set forth therein, Merger Sub will merge with
and into Dover Downs (the “Merger”), with Dover Downs becoming an indirect wholly-owned subsidiary of the Company.
See Note 13.
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
2. Summary
of Significant Accounting Policies
Principles
of Consolidation
The accompanying
condensed consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiary
TRMG and its subsidiaries. All intercompany transactions and balances have been eliminated in the consolidation.
Use of Estimates
in the Preparation of Financial Statements
The preparation
of financial statements in conformity with accounting principles generally accepted in the United States of America (“US
GAAP”) requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and
revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, the Company evaluates
its estimates and judgments including those related to the allowance for doubtful accounts, valuation of goodwill and intangible
assets, recoverability and useful lives of tangible and intangible long-lived assets, accruals for players club card incentives
and for potential liabilities related to any lawsuits or claims brought against the Company, fair value of financial instruments,
stock compensation and valuation allowances for deferred tax assets. The Company bases its estimates and judgments on historical
experience and other relevant factors impacting the carrying value of assets and liabilities. Actual results may differ from these
estimates.
The accompanying
condensed consolidated balance sheet as of September 30, 2018, and the condensed consolidated statements of operations and
comprehensive income for the three and nine months ended September 30, 2018 and 2017, the condensed consolidated statements
of changes in shareholders’ equity for the nine months ended September 30, 2018 and the condensed consolidated statements
of cash flows for the nine months ended September 30, 2018 and 2017 are unaudited. These unaudited interim financial
statements have been prepared on the same basis as the audited consolidated financial statements, and in management’s opinion,
includes all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s
financial position as of September 30, 2018 and its results of operations for the three and nine months ended September 30,
2018 and 2017, changes in shareholders’ equity for the nine months ended September 30, 2018 and cash flows for the nine months
ended September 30, 2018 and 2017. These interim condensed consolidated financial statements should be read in conjunction
with the Company’s most recent audited financial statements and notes thereto for the fiscal year ended December 31, 2017,
included in the Dover Downs proxy statement filed on November 5, 2018. The financial data and the other financial information
disclosed in the notes to these consolidated financial statements related to the three and nine month periods are also unaudited.
The results of operations for the three and nine months ended September 30, 2018 and 2017 are not necessarily indicative
of the results to be expected for the full fiscal year or any other period.
Segments
Operating segments
are identified as components of an enterprise about which separate discrete financial information is available for evaluation
by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. Certain operating
segments are aggregated into reportable segments. See Note 15.
Significant
Accounting Policies
There have
been no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s
December 31, 2017 audited consolidated financial statements, which are included with in the Dover Downs proxy statement filed
on November 5, 2018.
Restricted
Cash
As of September 30,
2018 and December 31, 2017, restricted cash of $7.3 million and $7.4 million, respectively, was comprised of VLT
and table games cash payable to the State of Rhode Island which is unavailable for the Company’s use. The following table
reconciles cash and restricted cash in the condensed consolidated balance sheets to the total shown on the condensed consolidated
statements of cash flows.
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
|
|
September
30,
|
|
|
|
2018
|
|
|
2017
|
|
Cash and cash
equivalents
|
|
$
|
78,589
|
|
|
$
|
71,940
|
|
Restricted
cash
|
|
|
7,333
|
|
|
|
5,811
|
|
Total
cash and cash equivalents and restricted cash
|
|
$
|
85,922
|
|
|
$
|
77,751
|
|
Accounts
Receivable and Allowance for Doubtful Accounts
The Company
carries its accounts receivable at cost less an allowance for doubtful accounts. Accounts receivable are primarily comprised of
receivables from the State of Rhode Island for Twin River Casino’s, Tiverton Casino Hotel’s and Newport Grand’s
share of VLT and table games revenue, receivables from tracks and off-track betting locations that air simulcast races and casino
and hotel receivables. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful
accounts based on a specific review of customer accounts as well as historical collection experience and current economic conditions.
The allowance was $1.0 million and $0.8 million at September 30, 2018 and December 31, 2017, respectively.
Property
and Equipment
The Company
applied “fresh start accounting” upon emergence from Chapter 11 reorganization, in accordance with the guidance of
Accounting Standards Codification (“ASC”) 805,
Business Combinations
and ASC 852,
Reorganizations
. As
a result of “fresh start accounting”, the Company adjusted property and equipment to reflect its fair value
on November 5, 2010 (“Emergence Date”). Additions subsequent to that date have been recorded at cost.
Property and
equipment obtained in connection with acquisitions is valued at its estimated fair value as of the date of acquisition. Additions
subsequent to the acquisition date are recorded at cost.
Property and
equipment are depreciated over the estimated useful lives of the assets using the straight-line method. Expenditures for renewals
and betterments that extend the life or value of an asset are capitalized; expenditures for repairs and maintenance are charged
to expense as incurred. The costs and related accumulated depreciation applicable to assets sold or disposed are removed from
the balance sheet accounts and the resulting gains or losses are reflected in the accompanying condensed consolidated statements
of operations.
Development
costs directly associated with the acquisition, development and construction of a project are capitalized as a cost of the project
during the periods in which activities necessary to prepare the property for its intended use are in progress. Interest costs
associated with major construction projects are capitalized as part of the cost of the constructed assets. When no debt is incurred
specifically for a project, interest is capitalized on amounts expended for the project using the weighted-average cost of borrowing.
Capitalization of interest ceases when the project (or discernible portions of the project) is substantially complete. If substantially
all of the construction activities of a project are suspended, capitalization of interest will cease until such activities are
resumed. During the three and nine months ended September 30, 2018, capitalized interest was $1.3 million and $3.4 million,
respectively. There was no interest capitalized during the three and nine months ended September 30, 2017.
Debt Issuance
Costs and Debt Discounts
Debt issuance
costs and debt discounts incurred in connection with obtaining and amending financing have been included as a component of the
carrying amount of debt, with the exception of revolving credit facility debt issuance costs, which are included in Deferred financing
fees, net in the condensed consolidated balance sheets.
Debt issuance
costs and debt discounts are amortized over the contractual term of the debt to interest expense. Debt issuance costs of the revolving
credit facility are amortized on a straight-line basis, while all other debt issuance costs and debt discounts are amortized using
the effective interest method. Amortization of debt issuance costs and debt discounts included in interest expense was $0.6 million
and $0.7 million for the three months ended September 30, 2018 and 2017, respectively, and $2.5 million and
$2.6 million for the nine months ended September 30, 2018 and 2017, respectively.
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
Revenue
Recognition
The Company
accounts for revenue earned from contracts with customers under ASU No. 2014-09,
Revenue from Contracts with Customers (Topic
606)
. The Company generates revenue from five principal sources: gaming services, hotel, racing, food and beverage and other.
Gaming revenue
includes Twin River Casino’s, Tiverton Casino Hotel’s (upon its opening on September 1, 2018) and Newport Grand’s
(until its closing on August 28, 2018) share of VLT revenue as determined by their respective master VLT contracts with the State
of Rhode Island. Twin River Casino is entitled to a 28.85% share of VLT revenue on the initial 3,002 units and a 26.00% share
on VLT revenue generated from units in excess of 3,002. Tiverton Casino Hotel is and Newport Grand was entitled to receive
a percentage of VLT revenue that is equivalent to the percentage received by Twin River Casino. Gaming revenue also
includes Twin River Casino’s and Tiverton Casino Hotel’s share of table games revenue whereby Twin River Casino and
Tiverton Casino Hotel are entitled to an 83.5% share of table games revenue generated. Revenue is recognized when the wager is
complete, which is when the customer has received the benefits of the Company’s gaming services and the Company has a present
right to payment. The Company records revenue on a net basis which is the percentage share of VLT revenue received as the
Company acts as an agent in operating the gaming service on behalf of the State of Rhode Island.
Gaming revenue
also includes Hard Rock Biloxi’s casino revenue, which is the aggregate net difference between gaming wins and losses, with
liabilities recognized for funds deposited by customers before gaming play occurs, for chips outstanding and “ticket-in,
ticket-out” coupons in the customers’ possession, and for accruals related to the anticipated payout of progressive
jackpots. Progressive slot machines, which contain base jackpots that increase at a progressive rate based on the number of credits
played, are charged to revenue as the amount of the progressive jackpots increase.
Gaming services
contracts have two performance obligations for those customers earning incentives under the Company’s player loyalty programs
and a single performance obligation for customers who do not participate in the programs. The Company applies a practical expedient
by accounting for its gaming contracts on a portfolio basis as such wagers have similar characteristics and the Company reasonably
expects the effects on the financial statements of applying the revenue recognition guidance to the portfolio do not differ materially
from that which would result if applying the guidance to an individual wagering contract. For purposes of allocating the transaction
price in a wagering contract between the wagering performance obligation and the obligation associated with incentives earned
under loyalty programs, the Company allocates an amount to the loyalty program contract liability based on the stand-alone selling
price of the incentives earned for a hotel room stay, food and beverage or other amenities. The performance obligations for the
incentives earned under the loyalty programs are deferred and recognized as revenue when the customer redeems the incentive. When
redeemed, revenue is recognized in the department that provides the goods or service. After allocating revenue to other goods
and services provided as part of casino wager contracts, the Company records the residual amount to casino revenue.
Hotel revenue
is recognized at the time of occupancy, which is when the customer obtains control through occupancy of the room. Advance deposits
for hotel rooms are recorded as liabilities until revenue recognition criteria are met.
Racing revenue
includes Twin River Casino’s, Newport Grand’s, Tiverton Casino Hotel’s and Mile High USA’s share of wagering
from live racing and the import of simulcast signals. Racing revenue is recognized when the wager is complete based on an established
take out percentage. The Company functions as an agent to the pari-mutuel pool. Therefore, fees and obligations related to
the Company’s share of purse funding, simulcasting fees, tote fees, pari-mutuel taxes, and other fees directly related to
the Company’s racing operations are reported on a net basis and included as a deduction to racing revenue.
Food and beverage
revenue are recognized at the time the goods are sold from Company-operated outlets.
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
All other revenues
are recognized at the time the goods are sold or the service is provided.
The following
table provides a disaggregation of net revenue by segment for the three and nine months ended September 30, 2018 and
2017:
|
|
Rhode
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2018
|
|
Island
|
|
|
Biloxi
|
|
|
Other
|
|
|
Total
|
|
Gaming
|
|
$
|
61,209
|
|
|
$
|
20,858
|
|
|
$
|
-
|
|
|
$
|
82,067
|
|
Racing
|
|
|
900
|
|
|
|
-
|
|
|
|
2,386
|
|
|
|
3,286
|
|
Hotel
|
|
|
109
|
|
|
|
5,603
|
|
|
|
-
|
|
|
|
5,712
|
|
Food
and beverage
|
|
|
6,928
|
|
|
|
5,198
|
|
|
|
3
|
|
|
|
12,129
|
|
Other
|
|
|
5,633
|
|
|
|
1,542
|
|
|
|
125
|
|
|
|
7,300
|
|
Net
revenue
|
|
$
|
74,779
|
|
|
$
|
33,201
|
|
|
$
|
2,514
|
|
|
$
|
110,494
|
|
|
|
Rhode
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2017
|
|
Island
|
|
|
Biloxi
|
|
|
Other
|
|
|
Total
|
|
Gaming
|
|
$
|
59,213
|
|
|
$
|
19,992
|
|
|
$
|
-
|
|
|
$
|
79,205
|
|
Racing
|
|
|
940
|
|
|
|
-
|
|
|
|
2,511
|
|
|
|
3,451
|
|
Hotel
|
|
|
-
|
|
|
|
5,353
|
|
|
|
-
|
|
|
|
5,353
|
|
Food
and beverage
|
|
|
6,601
|
|
|
|
5,069
|
|
|
|
7
|
|
|
|
11,677
|
|
Other
|
|
|
5,342
|
|
|
|
1,411
|
|
|
|
123
|
|
|
|
6,876
|
|
Net
revenue
|
|
$
|
72,096
|
|
|
$
|
31,825
|
|
|
$
|
2,641
|
|
|
$
|
106,562
|
|
|
|
Rhode
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2018
|
|
Island
|
|
|
Biloxi
|
|
|
Other
|
|
|
Total
|
|
Gaming
|
|
$
|
182,567
|
|
|
$
|
61,348
|
|
|
$
|
-
|
|
|
$
|
243,915
|
|
Racing
|
|
|
2,883
|
|
|
|
-
|
|
|
|
7,557
|
|
|
|
10,440
|
|
Hotel
|
|
|
109
|
|
|
|
15,543
|
|
|
|
-
|
|
|
|
15,652
|
|
Food
and beverage
|
|
|
21,599
|
|
|
|
14,311
|
|
|
|
5
|
|
|
|
35,915
|
|
Other
|
|
|
15,929
|
|
|
|
4,022
|
|
|
|
242
|
|
|
|
20,193
|
|
Net
revenue
|
|
$
|
223,087
|
|
|
$
|
95,224
|
|
|
$
|
7,804
|
|
|
$
|
326,115
|
|
|
|
Rhode
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2017
|
|
Island
|
|
|
Biloxi
|
|
|
Other
|
|
|
Total
|
|
Gaming
|
|
$
|
178,530
|
|
|
$
|
60,976
|
|
|
$
|
-
|
|
|
$
|
239,506
|
|
Racing
|
|
|
3,029
|
|
|
|
-
|
|
|
|
7,853
|
|
|
|
10,882
|
|
Hotel
|
|
|
-
|
|
|
|
15,316
|
|
|
|
-
|
|
|
|
15,316
|
|
Food
and beverage
|
|
|
21,517
|
|
|
|
14,543
|
|
|
|
9
|
|
|
|
36,069
|
|
Other
|
|
|
15,445
|
|
|
|
4,047
|
|
|
|
234
|
|
|
|
19,726
|
|
Net
revenue
|
|
$
|
218,521
|
|
|
$
|
94,882
|
|
|
$
|
8,096
|
|
|
$
|
321,499
|
|
The Company
currently has loyalty programs for its gaming patrons which allows them to earn incentives based on the volume of their gaming
activity. Under Topic 606, incentives awarded under customer loyalty programs are considered a material right given to gaming
patrons based on their gaming play and are accounted for as a separate performance obligation. Topic 606 requires the Company
to allocate revenues associated with the gaming patrons’ gaming activity between gaming revenue and the value of the incentives
earned after factoring in the likelihood of redemption. As a result, gaming revenues are reduced with a corresponding increase
to other operating revenues or the incentive liability. The value of the unredeemed incentives is now determined based on the
estimated standalone selling price of the incentives earned. The revenue associated with the incentives earned is recognized in
the period in which they are redeemed. In accordance with Topic 606, the following incentives were allocated from gaming revenue
using the residual approach for the three and nine months ended September 30, 2018 and 2017:
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Hotel rooms
|
|
$
|
2,945
|
|
|
$
|
2,918
|
|
|
$
|
8,270
|
|
|
$
|
8,823
|
|
Food and beverage
|
|
|
5,908
|
|
|
|
5,880
|
|
|
|
17,465
|
|
|
|
18,217
|
|
Other
|
|
|
1,656
|
|
|
|
1,604
|
|
|
|
4,234
|
|
|
|
4,505
|
|
|
|
$
|
10,509
|
|
|
$
|
10,402
|
|
|
$
|
29,969
|
|
|
$
|
31,545
|
|
The Company’s
receivables related to contracts with customers are primarily comprised of marker balances and other amounts due from gaming activities,
amounts due for hotel stays, and amounts due from tracks and off-track betting locations. The Company’s receivables related
to contracts with customers are $13.7 million and $12.1 million at September 30, 2018 and December 31, 2017,
respectively. The Company has the following liabilities related to contracts with customers: liabilities for loyalty programs,
deposits made in advance for goods and services yet to be provided, and unpaid wagers. All of the contract liabilities are short
term in nature. Loyalty program incentives earned by customers are typically redeemed within one year from when they are earned
and expire if a customer’s account is inactive for more than twelve months; therefore, the majority outstanding at
the end of a period will either be redeemed or expire within the next year. The Company’s contract liabilities related to
loyalty programs were $9.4 million and $9.0 million at September 30, 2018 and December 31, 2017, respectively, and are included
as Accrued liabilities in the condensed consolidated balance sheets. The Company recognized $2.1 million and $2.1 million of revenue
related to loyalty program redemptions for the three months ended September 30, 2018 and 2017, respectively. The Company
recognized $6.1 million and $6.0 million of revenue related to loyalty program redemptions for the nine months ended September 30,
2018 and 2017, respectively.
Advance deposits
are typically for future banquet events and to reserve hotel rooms. These deposits are usually received weeks or months in
advance of the event or hotel stay. Unpaid pari-mutuel tickets not claimed within twelve months by the customer who earned
them are escheated to the state. The Company’s contract liabilities related to deposits from customers were $1.3 million
and $1.3 million at September 30, 2018 and December 31, 2017, respectively, and are included as Accrued liabilities in the condensed
consolidated balance sheets.
Topic 606 requires
complimentary items to be considered a separate performance obligation, which requires the Company to allocate a portion of revenue
from a gaming transaction to other operating revenue based on the estimated standalone selling prices of the promotional items
provided. For example, when a casino customer is given a complimentary room, the Company is required to allocate a portion of
the casino revenue earned from the customer to hotel revenue based on the estimated standalone selling price of the hotel room.
The estimated standalone selling price of hotel rooms is determined based on observable prices. The standalone selling price of
food and beverage, and other miscellaneous goods and services is determined based upon the actual retail prices charged customers
for those items. Revenue is recognized in the period the goods or service is provided.
Advertising
Expense
The Company
expenses advertising costs as incurred. For the three months ended September 30, 2018 and 2017, advertising expense
was $1.5 million and $1.4 million, respectively. For the nine months ended September 30, 2018 and 2017, advertising
expense was $4.4 million and $4.5 million, respectively.
Self-Insurance
The Company
is self-insured for employee medical insurance coverage up to an individual stop loss of $100,000 in 2018 and 2017. Self-insurance
liabilities are estimated based on the Company’s claims experience and are included in Accrued liabilities in the condensed
consolidated balance sheets. Such amounts were $1.1 million and $1.0 million at September 30, 2018 and December 31,
2017, respectively.
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
Expansion
and Pre-opening Expenses
Expansion and
pre-opening expenses are charged to expense as incurred. The Company defines pre-opening expenses as costs incurred before the
property commences commercial operations and defines expansion expenses as costs incurred in connection the opening of a new facility
or significant expansion of an existing property. Costs classified as Expansion and pre-opening costs consist primarily of marketing,
master planning, conceptual design fees and legal and professional fees that are not eligible for capitalization incurred in connection
with Tiverton Casino Hotel and the Lincoln hotel. Expansion and pre-opening costs for the three months ended September 30,
2018 and 2017 were $2.1 million and $62,000, respectively. Expansion and pre-opening costs for the nine months ended September 30,
2018 and 2017 were $2.6 million and $0.1 million, respectively.
Interest
Expense
Interest expense
is comprised of interest costs for the Company’s debt, amortization of deferred financing fees and original issue discount,
net of amounts capitalized for construction projects. Interest expense recorded in the accompanying statements of operations totaled
$5.4 million and $5.9 million for the three months ended September 30, 2018 and 2017, respectively. Interest
expense recorded in the accompanying statements of operations totaled $16.3 million and $17.9 million for the nine months
ended September 30, 2018 and 2017, respectively.
Concentrations
of Credit Risk
ASC 825,
Financial
Instruments
, requires disclosure of significant concentrations of credit risk regardless of the degree of such risk. As of
September 30, 2018 and December 31, 2017, the Company’s financial instruments, which potentially expose the Company
to concentrations of credit risk, consisted of cash and trade receivables. The Company maintains cash with financial institutions
in excess of federally insured limits however management believes the credit risk is mitigated by the quality of the institutions
holding such deposits.
The Company
has recorded accounts receivable from the State of Rhode Island, tracks, off-track betting locations and casino and hotel receivables.
The Company has evaluated the collectability of the receivables and believes all receivables, net of the allowance for doubtful
accounts, to be collectible and the credit risk to be minimal. As of September 30, 2018 and December 31, 2017, receivables
from the State of Rhode Island comprised approximately 68% of the accounts receivable balance in each of the periods.
For each of
the three months ended September 30, 2018 and 2017, gaming revenue from the State of Rhode Island accounted for 56%
of net revenue. For the nine months ended September 30, 2018 and 2017, gaming revenue from the State of Rhode Island
accounted for 56% of net revenue in each of the periods. Based on the Contract with the State of Rhode Island and historical experience,
the Company’s management believes any credit risk to be minimal.
Recent
Accounting Pronouncements:
Standards
implemented
In May 2014,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers
(“Topic 606”), amending revenue recognition guidance and requiring more
detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue
and cash flows arising from contracts with customers. The core principle of Topic 606 is that revenue should be recognized to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. Additional ASUs have been issued that are part of the overall
new revenue guidance including: (i) ASU 2016-08,
Principal versus Agent Considerations (Reporting Revenue Gross versus
Net)
, (ii) ASU 2016-10,
Identifying Performance Obligations and Licensing
, (iii) ASU 2016-20,
Technical Corrections
and Improvements to Topic 606, Revenue from Contracts with Customers
and (iv) ASU 2016-12,
Narrow Scope Improvements and
Practical Expedients
, which clarified guidance on certain items such as reporting revenue as a principal or agent, identifying
performance obligations, accounting for fixed odds wagering contracts associated with the Company’s racing operations, accounting
for intellectual property licenses and accessing collectability and presentation of sales tax. The Company adopted Topic 606 on
January 1, 2018 using the full retrospective method.
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
Topic 606 changed
the presentation of net revenue and operating expenses. Prior to the adoption of Topic 606, the retail value of complimentary
hotel rooms, food, beverages and other services provided to the Company’s customers was included in gross revenue, with
an offsetting reduction for promotional allowances to derive net revenues. The estimated direct cost of providing these items
was charged to the casino through interdepartmental allocations and included in gaming expenses. Under the new guidance, revenues
are allocated among the revenue classifications based on the relative standalone selling prices of the goods and services provided
to the customer after factoring in the likelihood of redemption of incentives. The accounting for the Company’s loyalty
programs was also impacted, with changes to the timing and/or classification of certain transactions between net revenue and operating
expenses.
The effects
of the adoption of Topic 606 on the condensed consolidated statements of operations and comprehensive income for the three and
nine months ended September 30, 2017 was as follows:
|
|
September
30, 2017
|
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
Revenues
|
|
|
|
|
|
|
Gaming
|
|
$
|
(11,696
|
)
|
|
$
|
(35,218
|
)
|
Racing
|
|
|
(976
|
)
|
|
|
(2,816
|
)
|
Hotel
|
|
|
(51
|
)
|
|
|
(160
|
)
|
Food
and beverage
|
|
|
(329
|
)
|
|
|
(1,135
|
)
|
Entertainment
and other
|
|
|
154
|
|
|
|
447
|
|
Gross
revenues
|
|
|
(12,898
|
)
|
|
|
(38,882
|
)
|
Less:
Promotional allowances
|
|
|
10,787
|
|
|
|
32,852
|
|
Net
revenues
|
|
|
(2,111
|
)
|
|
|
(6,030
|
)
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses
|
|
|
|
|
|
|
|
|
Gaming
|
|
|
(6,568
|
)
|
|
|
(20,367
|
)
|
Racing
|
|
|
(976
|
)
|
|
|
(2,816
|
)
|
Hotel
|
|
|
1,077
|
|
|
|
3,207
|
|
Food
and beverage
|
|
|
4,632
|
|
|
|
14,809
|
|
Advertising,
general and administrative
|
|
|
(276
|
)
|
|
|
(863
|
)
|
Total
operating costs and expenses
|
|
|
(2,111
|
)
|
|
|
(6,030
|
)
|
Income
from operations
|
|
$
|
-
|
|
|
$
|
-
|
|
In January 2017,
the FASB issued ASU 2017-04,
Intangibles — Goodwill and Other (Topic 350) — Simplifying
the Test for Goodwill Impairment
. This standard simplifies the quantitative goodwill impairment test by eliminating the second
step of the test. Under this standard, impairment will be measured by comparing the estimated fair value of the reporting unit
with its carrying value. The Company early adopted this standard in conjunction with its 2017 goodwill impairment test. Adoption
of this standard did not have a material impact on the results of the Company’s goodwill impairment test.
In March 2016,
the FASB issued ASU 2016-09,
Compensation — Stock Compensation (Topic 718) — Improvements
to Employee Share-Based Payment
, aimed at simplifying the accounting for share-based transactions. The standard included modifications
to the accounting for income taxes upon vesting or settlement of equity awards, employer tax withholding on share-based compensation
and financial statement presentation of excess tax benefits. The standard also provides an alternative on incorporating forfeitures
in share-based compensation. The Company adopted the standard effective January 1, 2017; adoption did not have a material
impact on the Company’s condensed consolidated financial statements.
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
In November 2016,
the FASB issued ASU 2016-18,
Statement of Cash Flows — Restricted Cash.
The amendments in this update
require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash
and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows. The Company adopted this standard effective January 1,
2018 by retrospective restatement of all prior period consolidated statements of cash flows.
In July 2015,
the FASB issued ASU 2015-11,
Inventory (Topic 330)
. This standard update simplified the subsequent measurement of inventory,
excluding inventory accounted for under the last-in, first-out or the retail inventory methods. The update replaced the current
lower of cost or market test with a lower of cost and net realizable value test. Under the prior guidance, market could be replacement
cost, net realizable value or net realizable value less an approximately normal profit margin. Net realizable value is the estimated
selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.
The adoption of ASU 2015-11 was applied prospectively and as of January 1, 2017 did not have an impact on the Company’s
condensed consolidated financial statements.
Standards
to be implemented
In February 2016,
the FASB issued ASU 2016-02,
Leases (Topic 842)
and subsequent amendments to the initial guidance: ASU 2017-13, ASU 2018-10
and ASU 2018-11 (collectively, Topic 842). Topic 842 requires companies to generally recognize on the balance sheet operating
and financing lease liabilities and corresponding right-of-use assets. Topic 842 is effective for the Company in the first quarter
of fiscal 2019 and earlier adoption is permitted. The Company is currently evaluating the impact of the pending adoption of Topic
842 on the consolidated financial statements. The Company currently expects that most of its operating lease commitments will
be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon the adoption of Topic
842, which will increase total assets and total liabilities that the Company reports relative to such amounts prior to adoption.
In June 2016,
the FASB issued ASU 2016-13,
Financial Instruments — Credit Losses (Topic 326) — Measurement
of Credit Losses on Financial Instruments
. This standard amends several aspects of the measurement of credit losses on financial
instruments, including trade receivables. The standard replaces the existing incurred credit loss model with the Current Expected
Credit Losses (CECL) model and amends certain aspects of accounting for purchased financial assets with deterioration in credit
quality since origination. Under CECL, the allowance for losses for financial assets that are measured at amortized cost reflects
management’s estimate of credit losses over the remaining expected life of the financial assets, based on historical experience,
current conditions and forecasts that affect the collectability of the reported amount. The standard is effective for annual and
interim periods beginning after December 15, 2019, with early adoption permitted for annual and interim periods beginning
after December 15, 2018. Adoption is through a cumulative-effect adjustment to retained earnings as of the beginning of the
first reporting period in which the guidance is effective (a modified-retrospective approach). The impact of adoption on the Company’s
financial statements will depend on, among other things, the economic environment and the type of financial assets held on the
date of adoption.
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
In
August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820), – Disclosure Framework – Changes
to the Disclosure Requirements for Fair Value Measurement
, which makes a number of changes meant to add, modify or remove
certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3
fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2019. Early adoption is permitted upon issuance of the update. The Company does not expect the adoption of
this guidance to have a material impact on its condensed consolidated Financial Statements.
3. Sale
of Newport Grand
On January 17,
2018, Newport Grand entered into a Purchase and Sale Agreement (the “Sale Agreement”) with a third party (the “Buyer”),
pursuant to which the Buyer acquired the land and building relating to Newport Grand for $10.2 million in a transaction that
closed on May 1, 2018. The Company leased back the Newport Grand from May 1, 2018 until November 1, 2018 at which time it
vacated the property. This lease is accounted for as an operating lease. On August 28, 2018, Newport Grand was closed, and
Tiverton Casino Hotel was opened on September 1, 2018.
As of January
17, 2018, Newport Grand met the accounting guidance for assets held for sale, thus the Company recorded an impairment loss of $4.2 million
for the difference between the fair value and the carrying value of the land, building and building improvements included in the
Sale Agreement. The Company also recorded an expense of $2.4 million, in accordance with ASC 450, Contingencies, as
the amount due for the Participation Rights became probable and reasonably estimable on this date. The move from Newport Grand
to Tiverton Casino Hotel occurred on September 1, 2018.
The following
sets forth the calculation of the Newport Grand disposal loss on the date the Company entered into the Sale Agreement:
Sale price
|
|
$
|
10,150
|
|
Land, building and improvement
costs sold or written off
|
|
|
(12,993
|
)
|
Transaction
costs
|
|
|
(669
|
)
|
Impairment
loss
|
|
|
(3,512
|
)
|
Participation
fees
|
|
|
(2,373
|
)
|
Land,
building and improvement disposal loss
|
|
|
(5,885
|
)
|
Equipment
written-off upon facility closure
|
|
|
(656
|
)
|
Newport
Grand disposal loss
|
|
$
|
(6,541
|
)
|
The sale of
the Newport Grand assets did not qualify as a discontinued operation as the sale is not a strategic shift that has (or will have)
a major effect on its operations and financial results.
4. Related
Party Transactions
Notes Receivable
from Officers, Directors and Employees
In July and
November 2015, in connection with the exercise of stock options under the 2010 BLB Worldwide Holdings, Inc. Stock Option
Plan (see Note 9), certain officers, directors and employees executed Secured Promissory Notes payable to TRMG in amounts equal
to the total exercise price of their stock options plus, in the case of certain officers, the amount of income taxes payable in
connection with the exercise. In April 2016, certain directors executed secured promissory notes payable to TRMG in amounts
equal to the amount of income taxes payable in connection with the July 2015 exercise.
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
The notes are
payable in full five years from the date of issuance and bear interest at rates ranging from 1.33% to 1.84%. Accrued interest
on the notes is due upon the payment or prepayment of any principal. Upon election of the maker, interest may be paid quarterly
on the last business day of each calendar quarter. Any unpaid interest at the end of a calendar quarter is added to the principal
of the note, thereby compounding quarterly. The notes may be prepaid at any time, in whole or in part, without premium or penalty.
The notes are secured by the shares issued in connection with the stock option exercise and are therefore considered nonrecourse
for accounting purposes. As such, (i) the purchase of common stock with promissory notes continued to be accounted for as
stock options and (ii) no receivable for amounts due under the promissory notes for the exercise price of the stock options was
recorded on the Company’s condensed consolidated balance sheets.
As of September 30,
2018 and December 31, 2017, there were $3.4 million and $4.3 million, respectively, of nonrecourse notes outstanding.
On March 1, 2018, January 16, 2018 and October 12, 2017, $0.2 million, $0.7 million and $0.3 million
of the nonrecourse notes were repaid, respectively. The Company considered the repayment of these notes as an exercise of stock
options. Interest associated with the nonrecourse notes is less than $0.1 million for the three months and nine months
ended September 30, 2018 and 2017.
The principal
amount due for taxes from officers, directors and employees as of September 30, 2018 and December 31, 2017 was $4.3 million
and $5.3 million, respectively. Additionally, as of September 30, 2018 and December 31, 2017, the Company has a
note receivable from an employee that is collateralized by the employee’s stock for $0.1 million. The principal due
for taxes and the note receivable from such employee are included in Receivables from related parties in the accompanying condensed
consolidated balance sheets. Interest income related to the Receivables from related parties is less than $0.1 million in
each of the three and nine months ended September 30, 2018 and 2017.
5. Property
and Equipment
At September 30,
2018 and December 31, 2017, property and equipment were comprised of the following:
|
|
Estimated Useful
Life
|
|
September
30,
|
|
|
December
31,
|
|
|
|
(in
years)
|
|
2018
|
|
|
2017
|
|
Land
|
|
|
|
$
|
31,437
|
|
|
$
|
34,260
|
|
Land
improvements
|
|
2-40
|
|
|
20,871
|
|
|
|
9,129
|
|
Building
and improvements
|
|
7-40
|
|
|
341,022
|
|
|
|
241,250
|
|
Equipment
|
|
2-14
|
|
|
77,154
|
|
|
|
72,319
|
|
Furniture
and fixtures
|
|
2-7
|
|
|
15,613
|
|
|
|
12,074
|
|
Construction
in process
|
|
|
|
|
34,361
|
|
|
|
64,717
|
|
Total property, plant and
equipment
|
|
|
|
|
520,458
|
|
|
|
433,749
|
|
Less:
Accumulated depreciation
|
|
|
|
|
(105,743
|
)
|
|
|
(98,201
|
)
|
Property
and equipment, net
|
|
|
|
$
|
414,715
|
|
|
$
|
335,548
|
|
Construction
in process relates to costs capitalized in conjunction with major improvements that have not yet been placed in service, and accordingly
are not currently being depreciated. The construction in process balance as of September 30, 2018 includes costs associated with
the development of a hotel at Twin River Casino which opened in the fourth quarter of 2018. The Construction in process balance
at December 31, 2017 includes costs associated with the development of a new casino in Tiverton that opened on September 1, 2018
and the hotel at Twin River Casino which opened in the fourth quarter of 2018.
Depreciation
expense relating to property and equipment was $3.8 million and $3.9 million for the three months ended September 30,
2018 and 2017, respectively. Depreciation expense relating to property and equipment was $11.4 million and $12.7 million
for the nine months ended September 30, 2018 and 2017, respectively.
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
6. Goodwill
and Intangible Assets
Intangible
Assets
At September 30,
2018, identifiable intangible assets for the Company were comprised of the following:
|
|
Weighted average
remaining life
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
(in
years)
|
|
amount
|
|
|
amortization
|
|
|
Amount
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rhode
Island contract for VLT's
|
|
1.8
|
|
$
|
29,300
|
|
|
$
|
(23,857
|
)
|
|
$
|
5,443
|
|
Twin
River Casino trade name
|
|
2.1
|
|
|
15,600
|
|
|
|
(12,334
|
)
|
|
|
3,266
|
|
Hard
Rock license
|
|
28.7
|
|
|
8,000
|
|
|
|
(1,030
|
)
|
|
|
6,970
|
|
Rated
player relationships
|
|
5.6
|
|
|
6,945
|
|
|
|
(3,872
|
)
|
|
|
3,073
|
|
Other
|
|
4.4
|
|
|
680
|
|
|
|
(339
|
)
|
|
|
341
|
|
Total amortizable intangible
assets
|
|
|
|
|
60,525
|
|
|
|
(41,432
|
)
|
|
|
19,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets not subject
to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rhode
Island VLT license
|
|
Indefinite
|
|
|
92,108
|
|
|
|
-
|
|
|
|
92,108
|
|
Novelty
game licenses
|
|
Indefinite
|
|
|
270
|
|
|
|
-
|
|
|
|
270
|
|
Total
unamortizable intangible assets
|
|
|
|
|
92,378
|
|
|
|
-
|
|
|
|
92,378
|
|
Total
intangible assets, net
|
|
|
|
$
|
152,903
|
|
|
$
|
(41,432
|
)
|
|
$
|
111,471
|
|
At December 31,
2017, identifiable intangible assets for the Company were comprised of the following:
|
|
Weighted average
remaining life
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
(in
years)
|
|
amount
|
|
|
amortization
|
|
|
Amount
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rhode
Island contract for VLT's
|
|
2.6
|
|
$
|
29,300
|
|
|
$
|
(21,594
|
)
|
|
$
|
7,706
|
|
Twin
River and Newport Grand trade names
|
|
2.8
|
|
|
15,890
|
|
|
|
(11,449
|
)
|
|
|
4,441
|
|
Hard
Rock license
|
|
29.5
|
|
|
8,000
|
|
|
|
(849
|
)
|
|
|
7,151
|
|
Rated
player relationships
|
|
6.3
|
|
|
6,980
|
|
|
|
(3,480
|
)
|
|
|
3,500
|
|
Other
|
|
5.2
|
|
|
680
|
|
|
|
(281
|
)
|
|
|
399
|
|
Total amortizable intangible
assets
|
|
|
|
|
60,850
|
|
|
|
(37,653
|
)
|
|
|
23,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets not subject
to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rhode
Island VLT license
|
|
Indefinite
|
|
|
91,900
|
|
|
|
-
|
|
|
|
91,900
|
|
Novelty
game licenses
|
|
Indefinite
|
|
|
270
|
|
|
|
-
|
|
|
|
270
|
|
Total
unamortizable intangible assets
|
|
|
|
|
92,170
|
|
|
|
-
|
|
|
|
92,170
|
|
Total
intangible assets, net
|
|
|
|
$
|
153,020
|
|
|
$
|
(37,653
|
)
|
|
$
|
115,367
|
|
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
Amortization
of intangible assets was approximately $1.4 million and $1.4 million for the three months ended September 30,
2018 and 2017, respectively. Amortization of intangible assets was approximately $4.1 million and $4.2 million for the
nine months ended September 30, 2018 and 2017, respectively.
The following
table shows the remaining amortization expense associated with finite lived intangible assets as of September 30, 2018:
|
|
Intangible
assets
|
|
Three months
ending December 31, 2018
|
|
$
|
1,367
|
|
2019
|
|
|
5,467
|
|
2020
|
|
|
3,877
|
|
2021
|
|
|
889
|
|
2022
|
|
|
875
|
|
Thereafter
|
|
|
6,618
|
|
|
|
$
|
19,093
|
|
Goodwill
The table below
summarizes goodwill by reportable segments at September 30, 2018 and December 31, 2017:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Rhode Island
|
|
$
|
83,101
|
|
|
$
|
83,101
|
|
Biloxi
|
|
|
48,934
|
|
|
|
48,934
|
|
Total
goodwill
|
|
$
|
132,035
|
|
|
$
|
132,035
|
|
7. Accrued
Liabilities
At September 30,
2018 and December 31, 2017, accrued liabilities consisted of the following:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Gaming
liabilities
|
|
$
|
17,889
|
|
|
$
|
18,121
|
|
Construction
accruals
|
|
|
21,421
|
|
|
|
14,802
|
|
Compensation
|
|
|
10,315
|
|
|
|
12,280
|
|
Property
taxes
|
|
|
1,319
|
|
|
|
2,625
|
|
Legal
|
|
|
3,302
|
|
|
|
1,336
|
|
Insurance
reserves
|
|
|
1,943
|
|
|
|
1,656
|
|
Advance
deposits
|
|
|
586
|
|
|
|
601
|
|
Pari-mutuel
tickets
|
|
|
693
|
|
|
|
693
|
|
Sales
and use taxes
|
|
|
403
|
|
|
|
312
|
|
Interest
payable
|
|
|
336
|
|
|
|
201
|
|
Pension
withdrawal liability
|
|
|
3,698
|
|
|
|
-
|
|
Other
|
|
|
6,794
|
|
|
|
5,222
|
|
Total
accrued liabilities
|
|
$
|
68,699
|
|
|
$
|
57,849
|
|
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
8. Long
Term Debt
At September 30,
2018 and December 31, 2017, long term debt consisted of the following:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Term Loan principal
|
|
$
|
343,639
|
|
|
$
|
376,966
|
|
Less: Unamortized original
issue discount
|
|
|
(1,201
|
)
|
|
|
(1,894
|
)
|
Less: Unamortized deferred
financing fees
|
|
|
(2,420
|
)
|
|
|
(3,872
|
)
|
Less:
Current portion
|
|
|
(3,595
|
)
|
|
|
(33,325
|
)
|
Term loan, net of current
portion, discount and deferred financing fees
|
|
|
336,423
|
|
|
|
337,875
|
|
|
|
|
|
|
|
|
|
|
Revolver
|
|
|
61,000
|
|
|
|
20,000
|
|
Long
term debt, net of discount and deferred financing fees
|
|
$
|
397,423
|
|
|
$
|
357,875
|
|
Credit Agreements
At September 30,
2018 and December 31, 2017, the Revolving Credit Facility balance was $61.0 million, and $20.0 million, respectively,
and amounts available were $38.6 million and $79.6 million, respectively, reflecting letters of credit issued of $0.4 million
at each date. The weighted average interest rate on outstanding borrowings on the Revolving Credit facility was 5.85% and 5.13%
on September 30, 2018 and December 31, 2017, respectively.
On
February 14, 2018, the Company amended the Credit Facility to, among other things, increase the capital expenditure
baskets to $150 million for Tiverton Casino Hotel and $35 million for the hotel construction at Twin River
Casino. On February 28, 2018, Tiverton Casino Hotel was joined as a subsidiary Guarantor under the Credit Facility
and pledged substantially all of its assets as security under the Credit Facility.
The Credit
Facility is collateralized by substantially all of the assets of Twin River Casino, Tiverton Casino Hotel, Hard Rock Biloxi and
Newport Grand. The Credit Facility contains certain
affirmative, negative and financial covenants, including compliance with a maximum leverage ratio when more than 20% of the capacity
is drawn on the Revolving Credit Facility and limitations on capital expenditures. The Credit Facility also restricts the Company
from making certain restricted payments, including dividends, subject to certain exceptions. Further, the Credit Facility restricts
the Company’s ability to make any payment on account of the purchase, redemption, retirement, acquisition, cancellation
or termination of any equity interests in the Company, TRMG or any subsidiary guarantor, subject to certain exceptions. There
were no operations at Twin River Worldwide Holdings, Inc. for the years ending December 31, 2017 and 2016 and only minimal
cash held as of December 31, 2017 and 2016, respectively. The Company is currently in compliance with all covenants as of September 30,
2018 and December 31, 2017.
Debt Maturities
As of September 30,
2018, the contractual annual principal maturities of long-term debt, including the Revolving Credit Facility, are as follows:
Three months
ending December 31, 2018
|
|
$
|
897
|
|
2019
|
|
|
3,589
|
|
2020
|
|
|
400,153
|
|
|
|
$
|
404,639
|
|
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
9. Stock-Based
Incentive Plans
Stock
Options
Exercises
and Related Notes Receivable and Puts
In July and
November 2015, certain employees and directors exercised a combined total of 466,107 stock options (the “Financed Options”)
and executed promissory notes to TRMG in connection with those exercises to finance the exercise price and associated income taxes.
The notes are considered nonrecourse for accounting purposes. As such, (i) the purchases of common stock with a promissory
note continued to be accounted for as stock options and (ii) no receivable for amounts due under the promissory notes for the
exercise price of the Financed Options were recorded on the Company’s condensed consolidated balance sheets. See Note 4.
On August 19,
2015, all previously issued option agreements under the 2010 Option Plan were amended (the “Put Amendment”), allowing
the participant to request purchase by the Company (“Put”) during April or October each year beginning in 2016 (“Put
Periods”) of up to one-third of any previously issued shares or vested but unexercised options under the 2010 Option Plan
for Fair Market Value, as defined, less the applicable exercise price in the case of vested but unexercised options. Participants
must be currently employed by the Company or serving as a director of the Company at the time of the request. Any purchases by
the Company during a Put Period are subject to limitations contained in the Credit Facility. In March 2018, the Company revised
the Put Periods from April and October to four periods in each year, subject to anticipated blackout periods.
During the
nine months ended September 30, 2018, promissory notes related to 92,000 Financed Options were paid. On the date the
promissory notes are paid, the options are considered exercised and the common stock is considered issued for accounting purposes.
Exercises
for Cash and Puts of Unexercised Options
During the
nine months ended September 30, 2018 and 2017, no vested but unexercised options were Put to the Company and no options,
excluding the Financed Options, were exercised.
A summary of
stock option activity under the 2010 Option Plan is as follows:
|
|
Shares
|
|
|
Weighted
Average Exercise Price
|
|
Outstanding at December 31, 2017
|
|
|
470,165
|
|
|
$
|
10.10
|
|
Exercised
|
|
|
(92,000
|
)
|
|
$
|
9.66
|
|
Outstanding at September
30, 2018
|
|
|
378,165
|
|
|
$
|
10.21
|
|
As liability
classified options, at the end of each reporting period, the Company recognizes share-based compensation expense for changes in
the intrinsic value of the vested awards and the potion of the unvested awards that has been recorded in expense. All awards were
vested as of December 31, 2017 and September 30, 2018. Upon exercise, the Company recognizes share-based compensation expense
for the difference between the fair market value on the date of exercise and previously recognized compensation expense.
The intrinsic
value of options outstanding under the 2010 Option Plan was $44.0 million and $46.5 million at September 30, 2018
and December 31, 2017, respectively. The Company recorded compensation income of $4.4 million and expense of $4.3 million,
in connection with the 2010 Option Plan for the three months ended September 30, 2018 and 2017, respectively. The Company
recorded compensation expense of $5.7 million and $13.0 million, in connection with the 2010 Option Plan for the nine months
ended September 30, 2018 and 2017, respectively.
The total intrinsic
value of options exercised or unvested options Put to the Company and cancelled was $8.1 million for the nine months ended
September 30, 2018.
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
All awards
were vested as of December 31, 2017. Accordingly, there was no remaining compensation cost relating to unvested awards under
the 2010 Option Plan as of December 31, 2017 or September 30, 2018. Effective December 9, 2015, it was determined
that no new awards would be granted under the 2010 Option Plan.
Restricted
Stock Units and Performance-Based Restricted Stock Units
Equity-Classified
Awards
The grant date
for the 2018 performance period has been established and, based on management’s estimates as of September 30, 2018,
the performance units to be earned are accrued based on the expected achievement against target. For the nine months
ended September 30, 2018, no additional performance-based Restricted Stock Units (“PSUs”) became eligible for
vesting.
A summary of
the equity classified Time-based Restricted Stock Unit (“RSU”) and PSU activity is as follows:
|
|
Restricted
Stock Units
|
|
|
Performance
Stock Units
|
|
|
Weighted
Average Grant Date Fair Value
|
|
Outstanding at December 31, 2017
|
|
|
24,667
|
|
|
|
25,470
|
|
|
|
|
|
Granted
|
|
|
1,309
|
|
|
|
11,672
|
|
|
$
|
108.34
|
|
Vested
and released
|
|
|
(6,284
|
)
|
|
|
-
|
|
|
|
|
|
Outstanding at September
30, 2018
|
|
|
19,692
|
|
|
|
37,142
|
|
|
|
|
|
The total remaining
compensation cost related to awards with an established grant date under the 2015 Incentive Plan as of September 30, 2018
is $0.9 million and will be recognized over a period of 15 months. The Company recorded compensation expense of $0.7 million
and $0.4 million in connection with these awards for the three months ended September 30, 2018 and 2017, respectively.
The Company recorded compensation expense of $1.7 million and $0.8 million in connection with these awards for
the nine months ended September 30, 2018 and 2017, respectively.
Liability-Classified
Awards
On January 1,
2018, the Company granted RSU’s to certain employees with a cash settlement feature. The actual amount of cash will be determined
by the number of RSUs to be settled in cash multiplied by the share price of Twin River common stock at the time of settlement.
A summary of
the liability classified RSU activity is as follows:
|
|
Restricted
Stock Units
|
|
|
Weighted
Average Grant Date Fair Value
|
|
Outstanding at December 31, 2017
|
|
|
-
|
|
|
|
|
|
Granted
|
|
|
8,404
|
|
|
$
|
102.00
|
|
Outstanding at September
30, 2018
|
|
|
8,404
|
|
|
|
|
|
Valuation
of Equity Compensation Awards
The fair values
of the shares of common stock underlying Twin River’s liability classified awards, RSUs and PSUs were estimated on each
grant date by the board of directors. In order to determine the fair value, the Company’s board of directors considered,
among other things, valuations of its common stock in accordance with the guidance provided by the American Institute of Certified
Public Accountants 2013 Practice Aid, Valuation of Privately Held Company Equity Securities Issued as Compensation, or the Practice
Aid. Given the absence of a public trading market of Twin River’s common stock, its board of directors exercised reasonable
judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of its common
stock. The board of directors used an income approach, weighted 80%, and a market approach, weighted 20%.
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
For the income
approach, the Company performed a discounted cash flow analysis, which utilized projected cash flows as well as a residual value,
which were discounted to the present value in order to arrive at an enterprise value. The Company relied on the following key
assumptions for the income approach, in addition to management projections for the business:
|
·
|
a
weighted average cost of capital (WACC), which served as the discount rate applied to
forecasted future cash flows to calculate the present value of those cash flows; and
|
|
·
|
a
long-term growth rate assumption, which was used to calculate the residual value of the
Company’s before discounting to present value.
|
For the market
approach, the Company utilized the guideline company method by analyzing a population of comparable companies and selected those
companies considered to be the most comparable to the Company in terms of business description, size, growth, profitability, risk
and return on investment, among other factors. The Company then used these guideline companies to develop relevant market multiples
and ratios, which were applied to the corresponding latest twelve months and forward financials to estimate total enterprise
value. The Company relied on the following key assumptions for the market approach:
|
·
|
the
Company’s projected financial results determined as of the valuation date based
on its best estimates; and
|
|
·
|
multiples
of enterprise value to EBITDA, determined as of the valuation date, based on a group
of comparable companies.
|
10. Temporary
Equity
The following
table summarizes the Company’s redeemable common stock activities for the nine months ended September 30, 2018:
|
|
|
|
|
Total
|
|
|
|
Shares
Subject to Redemption
|
|
|
Temporary
Equity
|
|
Balance as of December 31, 2017
|
|
|
83,022
|
|
|
$
|
9,053
|
|
Release
of restricted units for common stock subject to possible redemption
|
|
|
6,284
|
|
|
|
685
|
|
Deemed
dividends related to change in fair value of common stock subject to possible redemption
|
|
|
-
|
|
|
|
1,574
|
|
Balance as of September
30, 2018
|
|
|
89,306
|
|
|
$
|
11,312
|
|
11. Shareholders’
Equity
The Company
is authorized to issue up to 100,000,000 shares of common stock, par value $0.01 per share.
12. Employee
Benefit Plans
Multi-employer
Defined Benefit Plans
The Company
contributes to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that
cover certain of its union-represented employees. The risks of participating in these multiemployer plans are different from single-employer
plans in the following aspects:
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
|
a.
|
Assets
contributed to the multiemployer plan by one employer may be used to provide benefits
to employees of other participating employers.
|
|
b.
|
If
a participating employer stops contributing to the plan, the unfunded obligations of
the plan may be borne by the remaining participating employers.
|
|
c.
|
If
the Company chooses to stop participating in some of its multiemployer plans, the Company
may be required to pay those plans an amount based on the underfunded status of the plan,
referred to as a withdrawal liability.
|
Contributions,
based on wages paid to covered employees, totaled approximately $1.1 million and $0.9 million for the three-month periods ended
September 30, 2018 and 2017, respectively. Contributions, based on wages paid to covered employees, totaled approximately $2.7
million and $2.5 million for the nine-month periods ended September 30, 2018 and 2017, respectively. These aggregate contributions
were not individually significant to any of the respective plans. The Company’s share of the unfunded vested liability related
to its multi-employer plans, if any, other than the New England Teamsters and Tricking Industry Pension Fund discussed below,
is not determinable.
Under the terms
of certain collective bargaining agreements, the Company contributes to a number of multi-employer annuity funds. Contributions
are made at a fixed rate per hour worked, in accordance with the collective bargaining agreements. These plans are not subject
to the withdrawal liability provisions applicable to multi-employer defined benefit pension plans. Contributions made to these
plans by the Company were $0.7 million and $0.6 million for the three months ended September 30, 2018 and 2017, respectively and
$2.0 million and $1.8 million for the nine months ended September 30, 2018 and 2017, respectively.
401(k) Plan
The Company
has a retirement savings plan under Section 401(k) of the Internal Revenue Code covering non-union employees and certain
union employees. The plan allows employees to defer up to the lesser of the Internal Revenue Code prescribed maximum amount or
100% of their income on a pre-tax basis through contributions to the plan. Total voluntary contributions to the 401(k) profit-sharing
plan were $0.2 million for each of the three month periods ended September 30, 2018 and 2017 and $0.8 million and $0.7 million
for the nine-month periods ended September 30, 2018 and 2017, respectively.
New England
Teamsters and Trucking Industry Pension Fund
The Company
participates in a number of multi-employer defined benefit pension plans. The
New England Teamsters and Trucking Industry Pension
Fund (the “Pension Fund”)
is in critical and declining status. On September 30, 2018, the Company entered
into an agreement to withdraw from the Pension Fund and is not expected to have any further obligation to contribute to the Pension
Fund once the Company makes a withdrawal payment $3.7 million in October 2018. The Company recorded $3.7 million in Advertising,
general and administrative in the accompanying condensed consolidated statements of operations and comprehensive income for the
three and nine months ended September 30, 2018. On October 1, 2018, the Company entered into an agreement to re-enter the
Pension fund as a new employer and to contribute specified rates in the new agreement. The agreements have been ratified by the
union and the trustees of the Pension Fund.
13. Dover
Downs Transaction
On July 22,
2018, the Company entered into an Agreement with Dover Downs and the Merger Sub pursuant to which among other things and subject
to the conditions set forth therein, Merger Sub will merge with and into Dover Downs with Dover Downs becoming an indirect wholly-owned
subsidiary of the Company. The Merger contemplates that Dover Downs shareholders will exchange their Dover Downs stock for Twin
River common shares representing 7.225 percent of the equity in the combined company at closing. The transaction is expected
to close in the first quarter of 2019. For the three and nine months ended September 30, 2018, respectively, the Company incurred
$3.7 million and $4.3 million of transaction costs related to the Merger and becoming a publicly traded company, included in Advertising,
general and administrative in the accompanying condensed consolidated statements of operations and comprehensive income.
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
As a condition
to closing, Twin River will register its shares with the Securities and Exchange Commission and list the shares on the NYSE or
NASDAQ.
14. Commitments
and Contingencies
Operating
Leases
Twin River
Casino, Tiverton Casino Hotel, Newport Grand and Mile High USA incur expenses (included in racing expenses) for equipment rent
and contract service for the operation of pari-mutuel betting equipment, which are considered operating leases. The cost of the
equipment rentals is determined by the amount of pari-mutuel handle per racing program and any additional contractual agreements;
therefore, future minimum lease payments will vary and are currently not determinable.
Hard Rock Biloxi
is committed under various operating lease agreements primarily related to property, submerged tidelands and equipment. Generally,
these leases include renewal provisions and rental payments, which may be adjusted for taxes, insurance and maintenance related
to the property.
Hard Rock Biloxi
has an agreement with the State of Mississippi for the lease and use of approximately 5 acres of submerged tidelands for a primary
term of thirty years, expiring June 30, 2037. Upon expiration of the primary term, Hard Rock Biloxi will have an option
to extend the lease for a renewal term of thirty years. Annual rent for the lease in 2018 is approximately $1.2 million
and adjusts annually by the increase in the consumer price index.
Tiverton Casino
Hotel is committed under three operating lease agreements primarily related to hardware, software and food and beverage equipment
including lease terms ranging between 24 and 36 months.
Total rent
expense for these long-term lease obligations was approximately $0.5 million and $0.4 million for the three months
ended September 30, 2018 and 2017, respectively. Total rent expense for these long-term lease obligations was approximately
$1.2 million and $1.1 million for the nine months ended September 30, 2018 and 2017, respectively.
Hard Rock
License Agreement
Under the Hard
Rock License agreement, beginning on June 30, 2007, the Company was obligated to pay an annual fee of $1.1 million,
which increased to $1.5 million over five years and increases annually thereafter based on the consumer price index,
plus fees based on non-gaming revenues. The Company will pay a “Continuing Fee” equal to 3% of the Licensing Fee Revenues
and a marketing fee equal to 1% of the Licensing Fee Revenues during the term of the agreement. Fee expense under the license
agreement is included in Advertising, general and administrative expenses in the condensed consolidated statements of operations.
At September 30, 2018 and December 31, 2017, $0.3 million and $0.2 million, respectively, had been accrued
and recorded in accrued liabilities in the consolidated balance sheets.
Taxes
On December
22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance on accounting for
the tax effects of the Tax Cuts and Jobs Act (the “Act”). SAB 118 provides a measurement period that begins in the
reporting period that includes the Act’s enactment date and ends when an entity has obtained, prepared, and analyzed the
information that was needed in order to complete the accounting requirements under ASC 740, however in no circumstance should
the measurement period extend beyond one year from the enactment date. In accordance with SAB 118, a company must reflect in its
financial statements the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. SAB
118 provides that to the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete
but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
In accordance
with SAB 118, the Company has recorded a provisional estimated income tax benefit of $6.5 million for the year ended December
31, 2017 related to the remeasurement of the Company’s net deferred tax liability and other effects of the Act. As a result
of the adoption of the Act, the Company remeasured the net deferred tax liability at the reduced federal corporate income tax
rate. The remeasurement of the net deferred tax liability reflected in the financial statements is a provisional estimate as the
Company is still analyzing the impact of certain provisions of the Act and refining the calculations which could impact the remeasurement
of the net deferred tax liability. The Company will recognize any change to the provisional estimates as it refines the accounting
for the impact of the Act. The Company expects to complete its analysis of the provisional items during the fourth quarter of
2018.
Legal Matters
The Company
is involved in various claims and legal actions. The Company’s management believes, based on currently available information,
that any liability arising from such litigation, in excess of amounts recorded in the accompanying condensed consolidated balance
sheets, will not have a material effect on the Company’s financial position, results of operations or cash flows.
15. Segment
Reporting
The Company
has four operating segments: Twin River Casino, Hard Rock Biloxi, Newport Grand (until its closing on August 28, 2018) and Tiverton
Casino Hotel (upon its opening on September 1, 2018) and Mile High USA. Newport Grand is an immaterial operating segment,that
has been aggregated with Twin River Casino and Tiverton Casino Hotel to form the Rhode Island reportable segment. The Company’s
Biloxi reportable segment includes only Hard Rock Biloxi. The “Other” category includes Mile High USA, an immaterial
operating segment, and shared services provided by the Company’s management subsidiary.
The Company’s
operations are all within the U.S. The Company does not have any revenues from any individual customers that exceed 10% of total
reported revenues.
The following
table shows revenues, net loss, and identifiable assets for each of the Company’s reportable segments and reconciles these
to amounts shown in the Company’s condensed consolidated financial statements.
|
|
Rhode
Island
|
|
|
Biloxi
|
|
|
Other
|
|
|
Total
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
$
|
74,779
|
|
|
$
|
33,201
|
|
|
$
|
2,514
|
|
|
$
|
110,494
|
|
Income (loss) from operations
|
|
|
22,693
|
|
|
|
7,166
|
|
|
|
(208
|
)
|
|
|
29,651
|
|
Income (loss) before provision
for income taxes
|
|
|
20,798
|
|
|
|
7,167
|
|
|
|
(3,678
|
)
|
|
|
24,287
|
|
Depreciation and amortization
|
|
|
2,889
|
|
|
|
2,246
|
|
|
|
61
|
|
|
|
5,196
|
|
Interest expense
|
|
|
1,898
|
|
|
|
4
|
|
|
|
3,504
|
|
|
|
5,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
$
|
72,096
|
|
|
$
|
31,825
|
|
|
$
|
2,641
|
|
|
$
|
106,562
|
|
Income (loss) from operations
|
|
|
29,792
|
|
|
|
6,381
|
|
|
|
(5,571
|
)
|
|
|
30,602
|
|
Income (loss) before provision
for income taxes
|
|
|
27,606
|
|
|
|
6,381
|
|
|
|
(9,259
|
)
|
|
|
24,728
|
|
Depreciation and amortization
|
|
|
2,976
|
|
|
|
2,262
|
|
|
|
37
|
|
|
|
5,275
|
|
Interest expense
|
|
|
2,187
|
|
|
|
5
|
|
|
|
3,732
|
|
|
|
5,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
$
|
223,087
|
|
|
$
|
95,224
|
|
|
$
|
7,804
|
|
|
$
|
26,115
|
|
Income (loss) from operations
|
|
|
81,003
|
|
|
|
18,770
|
|
|
|
(13,821
|
)
|
|
|
85,952
|
|
Income (loss) before provision
for income taxes
|
|
|
74,667
|
|
|
|
18,770
|
|
|
|
(23,616
|
)
|
|
|
69,821
|
|
Depreciation and amortization
|
|
|
8,530
|
|
|
|
6,878
|
|
|
|
135
|
|
|
|
15,543
|
|
Interest expense
|
|
|
6,341
|
|
|
|
12
|
|
|
|
9,898
|
|
|
|
16,251
|
|
Capital expenditures, including
Tiverton Casino Hotel and new hotel at Twin River Casino
|
|
|
76,600
|
|
|
|
4,423
|
|
|
|
23,875
|
|
|
|
104,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
$
|
218,521
|
|
|
$
|
94,882
|
|
|
$
|
8,096
|
|
|
$
|
321,499
|
|
Income (loss) from operations
|
|
|
93,441
|
|
|
|
18,305
|
|
|
|
(16,013
|
)
|
|
|
95,733
|
|
Income (loss) before provision
for income taxes
|
|
|
86,708
|
|
|
|
18,302
|
|
|
|
(27,034
|
)
|
|
|
77,976
|
|
Depreciation and amortization
|
|
|
8,914
|
|
|
|
7,843
|
|
|
|
109
|
|
|
|
16,866
|
|
Interest expense
|
|
|
6,734
|
|
|
|
13
|
|
|
|
11,152
|
|
|
|
17,899
|
|
Capital expenditures, including
Tiverton Casino Hotel and new hotel at Twin River Casino
|
|
|
3,641
|
|
|
|
3,364
|
|
|
|
18,281
|
|
|
|
25,286
|
|
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
|
|
Rhode
Island
|
|
|
Biloxi
|
|
|
Other
|
|
|
Total
|
|
As of September 30,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
83,101
|
|
|
$
|
48,934
|
|
|
$
|
-
|
|
|
$
|
132,035
|
|
Assets
|
|
|
545,701
|
|
|
|
244,872
|
|
|
|
3,139
|
|
|
|
793,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
83,101
|
|
|
$
|
48,934
|
|
|
$
|
-
|
|
|
$
|
132,035
|
|
Assets
|
|
|
405,822
|
|
|
|
245,969
|
|
|
|
66,343
|
|
|
|
718,134
|
|
16. Earnings
Per Share
Basic earnings
per common share (EPS) is calculated by dividing net income applicable to common shareholders by the weighted average number of
common shares outstanding and RSUs and PSUs for which no future service is required as a condition to the delivery of the underlying
common stock (collectively, basic shares). Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive
effect of the common stock deliverable for stock options, using the treasury stock method, and for RSUs and PSUs for which future
service is required as a condition to the delivery of the underlying common stock. The table below presents the computations of
basic and diluted EPS:
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Net income -
basic and diluted
|
|
$
|
17,410
|
|
|
$
|
12,849
|
|
|
$
|
47,734
|
|
|
$
|
41,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic
|
|
|
9,231,232
|
|
|
|
9,119,204
|
|
|
|
9,222,792
|
|
|
|
9,118,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average non-vested RSUs and PSUs
|
|
|
65,238
|
|
|
|
50,137
|
|
|
|
63,778
|
|
|
|
32,917
|
|
Stock
options - treasury stock method
|
|
|
347,246
|
|
|
|
457,551
|
|
|
|
356,718
|
|
|
|
454,288
|
|
Weighted average shares
outstanding, diluted
|
|
|
9,643,716
|
|
|
|
9,626,892
|
|
|
|
9,643,288
|
|
|
|
9,606,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.89
|
|
|
$
|
1.41
|
|
|
$
|
5.18
|
|
|
$
|
4.54
|
|
Diluted
|
|
$
|
1.81
|
|
|
$
|
1.33
|
|
|
$
|
4.95
|
|
|
$
|
4.31
|
|
Twin River Worldwide Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
For the three and
nine months ended September 30, 2018 and 2017, there were no share-based awards that were considered anti-dilutive.
17. Subsequent
Events
The Company
has evaluated all events occurring between September 30, 2018 and November 21, 2018, the date the financial statements were
available to be issued.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of the financial condition and results of operations of Twin River Worldwide Holdings, Inc.
(“TRWH”) should be read in conjunction with TRWH’s unaudited condensed consolidated financial statements. This
discussion contains forward-looking statements based upon current expectations that involve numerous risks and uncertainties,
including those described in the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking
Statements” appearing in the preliminary proxy statement on Schedule 14A of Dover Downs Gaming & Entertainment, Inc.
(“Dover Downs”), filed with the U.S. Securities and Exchange Commission (the “SEC”) on November 5, 2018
(the “Dover Downs Preliminary Proxy Statement”). TRWH’s actual results may differ materially from those contained
in any forward-looking statements.
Overview
TRWH
is a multi-jurisdictional owner of gaming and racing facilities. TRWH currently owns and manages the Twin River Casino in Lincoln,
Rhode Island, the Tiverton Casino Hotel in Tiverton, Rhode Island, the Hard Rock Hotel & Casino in Biloxi, Mississippi and
the Arapahoe Park racetrack. It also leases and manages the Havana Park OTB site in Aurora, Colorado. On September 1, 2018, TRWH
opened the Tiverton Casino Hotel following the closure of the Newport Grand Casino in August 2018. As of November 14, 2018, TRWH’s
casinos had an aggregate of approximately 247,000 square feet of gaming space, 6,300 slot machines, 180 traditional gaming tables,
20 poker tables, 30 stadium gaming positions, 35 dining establishments, 15 bars, two entertainment venues and 700 hotel rooms.
The
Twin River Casino in Lincoln, Rhode Island is TRWH’s flagship property. Over the last several years, TRWH has grown through
strategic acquisitions and developments, notably the acquisition of the Hard Rock Hotel & Casino in Biloxi, Mississippi in
July 2014, the acquisition of the Newport Grand Casino in Newport, Rhode Island in July 2015 and the development of Tiverton Casino
Hotel in 2017 and 2018. Newport Grand Casino’s land and building was sold in May 2018 and leased back from the seller until
vacated. TRWH seeks to continue to grow its business by actively pursuing the acquisition and select development of new gaming
opportunities and reinvesting in its existing operations. In addition, TRWH seeks to increase revenues through enhancing the guest
experience by providing popular games, restaurants, hotel accommodations, entertainment and other amenities in attractive surroundings
with high-quality guest service.
TRWH
has two reportable segments, Rhode Island and Biloxi. The results of Newport Grand prior to its closing were aggregated with Twin
River Casino and Tiverton Casino Hotel to form the Rhode Island reportable segment. TRWH’s Biloxi reportable segment includes
only Hard Rock Biloxi. TRWH reports Mile High USA, an immaterial operating segment, and shared services provided by TRWH’s
management subsidiary in the “Other” category within the Segment Performance section below. TRWH’s operations
are all within the United States.
Financial Highlights
— Three Months and Nine Months Ended September 30, 2018 and 2017
Consolidated
Results of Operations — Three months ended September 30, 2018 versus Three months ended September 30, 2017
TRWH’s
Net Revenue for the three months ended September 30, 2018 increased $3.9 million to $110.5 million, from $106.6 million in the
comparable period in 2017.
TRWH’s
income from operations for the three months ended September 30, 2018 was $29.7 million, essentially the same compared to $30.6
million in the comparable period in 2017. TRWH reported net income for the three months ended September 30, 2018 and 2017 of $16.4
million and $13.4 million, respectively.
Consolidated
Results of Operations — Nine months ended September 30, 2018 versus Nine months ended September 30, 2017
TRWH’s
Net Revenue for the nine months ended September 30, 2018 increased $4.6 million to $326.1 million, from $321.5 million in the
comparable period in 2017.
TRWH’s
income from operations for the nine months ended September 30, 2018 was $86.0 million, compared to $95.7 million in the comparable
period in 2017. The decrease was driven by a loss of $6.5 million from the Newport Grand disposal loss and a $4.4 million increase
in advertising, general and administrative (“AGA”) expense primarily related to a $3.7 million accrual for the New
England Teamsters Multi-employer pension plan withdrawal liability. TRWH reported net income for the nine months ended September
30, 2018 and 2017 of $49.3 million and $43.1 million, respectively. The increase was primarily attributable to a decrease of $14.4
million in the provision for income taxes resulting from the reduced federal tax rate as a result of the Tax Cuts and Jobs Act
(the “TCJA”), despite the year over year decrease in income from operations.
Segment Performance
The
following table sets forth certain financial information associated with results of operations for the three and nine months ended
September 30, 2018 and 2017. Non-gaming Revenue includes Hotel, Food and beverage and Other revenue. Non-gaming Expenses include
Hotel and Food and beverage expenses.
(In thousands)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
2018
over 2017
|
|
|
September
30,
|
|
|
2018
over 2017
|
|
|
|
2018
|
|
|
2017
|
|
|
$
Change
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
$
Change
|
|
|
%
Change
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming and Racing Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rhode Island
|
|
$
|
62,109
|
|
|
$
|
60,153
|
|
|
$
|
1,956
|
|
|
|
3.3
|
%
|
|
$
|
185,450
|
|
|
$
|
181,559
|
|
|
$
|
3,891
|
|
|
|
2.1
|
%
|
Biloxi
|
|
|
20,858
|
|
|
|
19,992
|
|
|
|
866
|
|
|
|
4.3
|
%
|
|
|
61,348
|
|
|
|
60,976
|
|
|
|
372
|
|
|
|
0.6
|
%
|
Other
|
|
|
2,386
|
|
|
|
2,511
|
|
|
|
(125
|
)
|
|
|
(5.0
|
%)
|
|
|
7,557
|
|
|
|
7,853
|
|
|
|
(296
|
)
|
|
|
(3.8
|
%)
|
Total
Gaming and Racing Revenue
|
|
|
85,353
|
|
|
|
82,656
|
|
|
|
2,697
|
|
|
|
3.3
|
%
|
|
|
254,355
|
|
|
|
250,388
|
|
|
|
3,967
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-gaming Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rhode Island
|
|
|
12,670
|
|
|
|
11,943
|
|
|
|
727
|
|
|
|
6.1
|
%
|
|
|
37,637
|
|
|
|
36,962
|
|
|
|
675
|
|
|
|
1.8
|
%
|
Biloxi
|
|
|
12,343
|
|
|
|
11,833
|
|
|
|
510
|
|
|
|
4.3
|
%
|
|
|
33,876
|
|
|
|
33,906
|
|
|
|
(30
|
)
|
|
|
(0.1
|
%)
|
Other
|
|
|
128
|
|
|
|
130
|
|
|
|
(2
|
)
|
|
|
(1.5
|
%)
|
|
|
247
|
|
|
|
243
|
|
|
|
4
|
|
|
|
1.6
|
%
|
Total
Non-gaming Revenue
|
|
|
25,141
|
|
|
|
23,906
|
|
|
|
1,235
|
|
|
|
5.2
|
%
|
|
|
71,760
|
|
|
|
71,111
|
|
|
|
649
|
|
|
|
0.9
|
%
|
Net Revenue
|
|
|
110,494
|
|
|
|
106,562
|
|
|
|
3,932
|
|
|
|
3.7
|
%
|
|
|
326,115
|
|
|
|
321,499
|
|
|
|
4,616
|
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming and Racing Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rhode Island
|
|
$
|
11,896
|
|
|
$
|
10,584
|
|
|
$
|
1,312
|
|
|
|
12.4
|
%
|
|
$
|
33,683
|
|
|
$
|
31,160
|
|
|
$
|
2,523
|
|
|
|
8.1
|
%
|
Biloxi
|
|
|
6,768
|
|
|
|
6,864
|
|
|
|
(96
|
)
|
|
|
(1.4
|
%)
|
|
|
20,357
|
|
|
|
20,433
|
|
|
|
(76
|
)
|
|
|
(0.4
|
%)
|
Other
|
|
|
1,559
|
|
|
|
1,591
|
|
|
|
(32
|
)
|
|
|
(2.0
|
%)
|
|
|
4,661
|
|
|
|
5,092
|
|
|
|
(431
|
)
|
|
|
(8.5
|
%)
|
Total
Gaming and Racing Expenses
|
|
|
20,223
|
|
|
|
19,039
|
|
|
|
1,184
|
|
|
|
6.2
|
%
|
|
|
58,701
|
|
|
|
56,685
|
|
|
|
2,016
|
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-gaming Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rhode Island
|
|
|
5,992
|
|
|
|
5,433
|
|
|
|
559
|
|
|
|
10.3
|
%
|
|
|
17,679
|
|
|
|
17,969
|
|
|
|
(290
|
)
|
|
|
(1.6
|
%)
|
Biloxi
|
|
|
5,754
|
|
|
|
5,616
|
|
|
|
138
|
|
|
|
2.5
|
%
|
|
|
16,545
|
|
|
|
16,034
|
|
|
|
511
|
|
|
|
3.2
|
%
|
Other
|
|
|
8
|
|
|
|
3
|
|
|
|
5
|
|
|
|
147.0
|
%
|
|
|
14
|
|
|
|
10
|
|
|
|
4
|
|
|
|
40.9
|
%
|
Total
Non-gaming Expenses
|
|
|
11,754
|
|
|
|
11,052
|
|
|
|
702
|
|
|
|
6.4
|
%
|
|
|
34,238
|
|
|
|
34,013
|
|
|
|
225
|
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising, general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rhode Island
|
|
|
26,044
|
|
|
|
21,763
|
|
|
|
4,281
|
|
|
|
19.7
|
%
|
|
|
66,720
|
|
|
|
62,113
|
|
|
|
4,607
|
|
|
|
7.4
|
%
|
Biloxi
|
|
|
10,396
|
|
|
|
9,941
|
|
|
|
455
|
|
|
|
4.6
|
%
|
|
|
29,976
|
|
|
|
29,860
|
|
|
|
116
|
|
|
|
0.4
|
%
|
Other
|
|
|
4,435
|
|
|
|
8,828
|
|
|
|
(4,393
|
)
|
|
|
(49.8
|
%)
|
|
|
25,820
|
|
|
|
26,134
|
|
|
|
(314
|
)
|
|
|
(1.2
|
%)
|
Total
Advertising, general and gdministrative
|
|
|
40,875
|
|
|
|
40,532
|
|
|
|
343
|
|
|
|
0.8
|
%
|
|
|
122,516
|
|
|
|
118,107
|
|
|
|
4,409
|
|
|
|
3.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margins:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming and Racing Expenses as a percentage of Gaming
and Racing Revenue
|
|
|
24
|
%
|
|
|
23
|
%
|
|
|
|
|
|
|
1
|
%
|
|
|
23
|
%
|
|
|
23
|
%
|
|
|
|
|
|
|
-
|
%
|
Non-gaming Expenses as a percentage of Non-gaming
Revenue
|
|
|
47
|
%
|
|
|
46
|
%
|
|
|
|
|
|
|
1
|
%
|
|
|
48
|
%
|
|
|
48
|
%
|
|
|
|
|
|
|
-
|
%
|
Advertising, general and administrative as a percentage
of Net Revenue
|
|
|
37
|
%
|
|
|
38
|
%
|
|
|
|
|
|
|
(1
|
%)
|
|
|
38
|
%
|
|
|
37
|
%
|
|
|
|
|
|
|
1
|
%
|
Results of Operations
— Three Months and Nine Months Ended September 30, 2018 and 2017
Net Revenue
Gaming and Racing
Revenue
TRWH’s
Gaming and Racing Revenue for the three months ended September 30, 2018 increased $2.7 million, or 3.3%, from the comparable period
in 2017. This increase was primarily attributable to an increase of $2.0 million from the Rhode Island segment driven by opening
the Tiverton Casino Hotel casino on September 1, 2018. The Tiverton Casino Hotel generated incremental gaming and racing revenue
as compared to Newport Grand Casino due to expanded offerings such as table games as well as longer hours of operation. The increase
is also partially due to a $0.9 million increase from the Biloxi segment resulting primarily from an increase in slot revenue.
TRWH’s
Gaming and Racing Revenue for the nine months ended September 30, 2018 increased $4.0 million, or 1.6% from the comparable period
in 2017. This increase was primarily attributable to an increase of $3.9 million from the Rhode Island segment of which $2.5 million
was the result of the opening the Tiverton Casino Hotel casino on September 1, 2018.
Non-gaming Revenue
TRWH’s
Non-gaming Revenue for the three months ended September 30, 2018 increased $1.2 million, or 5.2%, from the comparable period in
2017. This increase was primarily attributable to a $0.7 million increase from opening the Tiverton Casino Hotel casino on September
1, 2018, as well as a $0.5 million increase in the Biloxi segment primarily due to an increase in hotel revenue from increased
occupancy due to improved utilization of online booking sites.
TRWH’s
Non-gaming Revenue for the nine months ended September 30, 2018 remained relatively consistent with the comparable period in 2017.
Operating costs
and expenses
Gaming and Racing
Expenses
TRWH’s
Gaming and Racing Expenses for the three months ended September 30, 2018 increased $1.2 million, or 6.2%, from the comparable
period in 2017. This increase was primarily attributable to an increase of $1.3 million from the Rhode Island segment driven by
opening the Tiverton Casino Hotel casino on September 1, 2018. This increase is also partially due to higher labor and benefits
costs of $0.4 million and expenses associated with new premium games of $0.2 million. As a percentage of Gaming and Racing Revenue,
costs remained relatively consistent.
TRWH’s
Gaming and Racing Expenses for the nine months ended September 30, 2018 increased $2.0 million, or 3.6%, from the comparable period
in 2017. This increase was primarily attributable to a $2.5 million increase in the Rhode Island segment due to higher labor and
benefits costs of $1.2 million and expenses associated with new premium games of $0.3 million. The increase is also partially
due to a $0.6 million net increase from opening the Tiverton Casino Hotel casino on September 1, 2018. As a percentage of Gaming
and Racing Revenue, costs remained relatively consistent.
Non-gaming Expenses
TRWH’s
Non-gaming Expenses for the three months ended September 30, 2018 increased $0.7 million, or 6.4%, from the comparable period
in 2017. This increase was consistent with an increase in Non-gaming Revenue. As a percentage of Non-gaming Revenue, costs remained
constant.
TRWH’s
Non-gaming Expenses for the nine months ended September 30, 2018 remained relatively consistent with the comparable period in
2017. As a percentage of Non-gaming Revenue, costs remained relatively consistent.
Advertising,
general and administrative
TRWH’s
AGA expense for the three months ended September 30, 2018 remained relatively consistent with the comparable period in 2017. An
$8.7 million decrease in share-based compensation expense for the decreased fair value of stock options classified as liability
awards that are recorded at fair value at the end of each reporting period, was partially offset by $3.7 million of transaction
costs related to the merger with Dover Downs and becoming a publicly traded company and a $3.7 million accrual for the New England
Teamsters Multi-employer pension plan withdrawal liability. As a percentage of Net Revenue, costs remained constant.
TRWH’s
AGA expense for the nine months ended September 30, 2018 increased $4.4 million, or 3.7%, from the comparable period in 2017,
primarily due to the $3.7 million accrual for the pension plan withdrawal liability described above. A $7.3 million decrease in
share-based compensation expense for the decreased fair value of stock options classified as liability awards that are recorded
at fair value at the end of each reporting period was partially offset by $4.3 million of costs related to the merger with Dover
Downs and becoming a publicly traded company and higher corporate professional fees. As a percentage of Net Revenue, costs remained
constant.
Other Operating
Costs and Expenses
(In thousands)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
2018
over 2017
|
|
|
September
30,
|
|
|
2018
over 2017
|
|
|
|
2018
|
|
|
2017
|
|
|
$
Change
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
$
Change
|
|
|
%
Change
|
|
Other Operating Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expansion and pre-opening
|
|
$
|
2,139
|
|
|
$
|
62
|
|
|
$
|
2,077
|
|
|
|
3,350.0
|
%
|
|
$
|
2,624
|
|
|
$
|
95
|
|
|
$
|
2,529
|
|
|
|
2,662.1
|
%
|
Newport Grand disposal loss
|
|
|
656
|
|
|
|
-
|
|
|
|
656
|
|
|
|
100.0
|
%
|
|
|
6,541
|
|
|
|
-
|
|
|
|
6,541
|
|
|
|
100.0
|
%
|
Expansion
and pre-opening costs for the three months ended September 30, 2018 increased $2.1 million primarily due to non-capitalized pre-opening
costs associated with the Tiverton Casino Hotel which opened on September 1, 2018. The Newport Grand disposal loss for the three
months ended September 30, 2018 is the result of the write-off of the remaining net book value of equipment upon vacating the
facility. The amounts for the nine month periods ended September 30, 2017 and September 30, 2018 include expenses incurred over
the course of such periods.
Depreciation
and Amortization of Intangibles
(In thousands)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
2018
over 2017
|
|
|
September
30,
|
|
|
2018
over 2017
|
|
|
|
2018
|
|
|
2017
|
|
|
$
Change
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
$
Change
|
|
|
%
Change
|
|
Depreciation and Amortization
of Intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of
property and equipment
|
|
$
|
3,829
|
|
|
$
|
3,879
|
|
|
$
|
(50
|
)
|
|
|
(1.3
|
%)
|
|
$
|
11,438
|
|
|
$
|
12,679
|
|
|
$
|
(1,241
|
)
|
|
|
(9.8
|
%)
|
Amortization
of intangibles
|
|
|
1,367
|
|
|
|
1,396
|
|
|
|
(29
|
)
|
|
|
(2.1
|
%)
|
|
|
4,105
|
|
|
|
4,187
|
|
|
|
(82
|
)
|
|
|
(2.0
|
%)
|
Total
Depreciation and Amortization of Intangibles
|
|
$
|
5,196
|
|
|
$
|
5,275
|
|
|
$
|
(79
|
)
|
|
|
(1.5
|
%)
|
|
$
|
15,543
|
|
|
$
|
16,866
|
|
|
$
|
(1,323
|
)
|
|
|
(7.8
|
%)
|
Depreciation
and amortization of intangibles for the three and nine months ended September 30, 2018 remained relatively consistent with the
comparable period in 2017. We anticipate an increase future depreciation of property and equipment due to the opening of the Tiverton
Casino Hotel.
Other Income
(Expense)
(In
thousands)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
2018
over 2017
|
|
|
September
30,
|
|
|
2018
over 2017
|
|
|
|
2018
|
|
|
2017
|
|
|
$
Change
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
$
Change
|
|
|
%
Change
|
|
Other Income
(Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
42
|
|
|
$
|
50
|
|
|
$
|
(8
|
)
|
|
|
(16.0
|
%)
|
|
$
|
120
|
|
|
$
|
142
|
|
|
|
(22
|
)
|
|
|
(15.5
|
%)
|
Interest
expense, net of amounts capitalized
|
|
|
(5,406
|
)
|
|
|
(5,924
|
)
|
|
|
518
|
|
|
|
(8.7
|
%)
|
|
|
(16,251
|
)
|
|
|
(17,899
|
)
|
|
|
1,648
|
|
|
|
(9.2
|
%)
|
Total
Other Expense
|
|
$
|
(5,364
|
)
|
|
$
|
(5,874
|
)
|
|
$
|
510
|
|
|
|
(8.7
|
%)
|
|
$
|
(16,131
|
)
|
|
$
|
(17,757
|
)
|
|
$
|
1,626
|
|
|
|
(9.2
|
%)
|
Total
Other expense decreased slightly primarily due to decreased interest expense resulting from $1.3 million for the three months
ended September 30, 2018 and $3.4 million for the nine months ended September 30, 2018 of capitalized interest partially offset
by higher interest rates. There was no capitalized interest during the three or nine months ended September 30, 2017.
Provision for
Income Taxes
(In thousands)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
2018
over 2017
|
|
|
September
30,
|
|
|
2018
over 2017
|
|
|
|
2018
|
|
|
2017
|
|
|
$
Change
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
$
Change
|
|
|
%
Change
|
|
Provisiton for Income
Taxes
|
|
$
|
7,913
|
|
|
$
|
11,320
|
|
|
$
|
(3,407
|
)
|
|
|
(30.1
|
%)
|
|
$
|
20,513
|
|
|
$
|
34,883
|
|
|
$
|
(14,370
|
)
|
|
|
(41.2
|
%)
|
Provision
for Income Taxes for the three months ended September 30, 2018 decreased $3.4 million from the comparable period in 2017. This
was primarily due to the federal tax rate being reduced to 21% from 35% as a result of the TCJA, which decreased the provision
by $3.2 million. Provision for Income Taxes for the nine months ended September 30, 2018 decreased $14.4 million from the comparable
period in 2017, primarily due to the TCJA. As of September 30, 2018, the Company continues to evaluate its accounting for the
tax effects of the enactment of the law. The Company made a reasonable estimate, which was recorded in the fourth quarter of 2017.
Once the Company finalizes its analysis, it will be able to conclude on further adjustments, if any, to be recorded to these provisional
amounts. Any such change will be reported as a component of income taxes in the period in which such adjustments are determined
but in no case later than the fourth quarter of 2018.
Supplemental
Unaudited Presentation of EBITDA and Adjusted EBITDA for the Three and Nine Months Ended September 30, 2018 and 2017.
EBITDA is defined
as earnings before interest, taxes, depreciation and amortization
.
Adjusted EBITDA is defined as net income before interest,
taxes, depreciation and amortization, management fees and certain other adjustments, such as the loss on sale of building share-based
compensation expenses, and other charges and credits that TRWH excludes because it believes they are not indicative of the ongoing
performance of its core operations.
Management believes
EBITDA and Adjusted EBITDA are useful to both management and TRWH’s investors in their analysis of TRWH’s business
and operating performance. EBITDA and Adjusted EBITDA is not a measure of operating performance computed in accordance with Generally
Accepted Accounting Principles (“GAAP”) and should not be considered as a substitute for net income or other measures
of profitability. Although EBITDA and Adjusted EBITDA and similar non-GAAP measures are used by investors and others in TRWH’s
industry, there are limitations to using these non-GAAP measures and they should not be considered in isolation or as a substitute
to TRWH’s results of operations determined in accordance with GAAP. These limitations include that (1) other companies in
TRWH’s industry may define EBITDA and Adjusted EBITDA differently than TRWH does and, as a result, it may not be comparable
to similar measures reported by other companies in our industry and (2) EBITDA and Adjusted EBITDA may exclude certain financial
information that some may consider important in evaluating TRWH’s financial performance. EBITDA and Adjusted EBITDA may
not be indicative of historical operating results, and TRWH does not intend for it to be predictive of future results of operations.
A reconciliation
of TRWH’s EBITDA and Adjusted EBITDA to net income per GAAP, which TRWH considers to be the most directly comparable financial
measure calculated in accordance with GAAP, is as follows (in thousands):
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Net income
|
|
$
|
16,374
|
|
|
$
|
13,408
|
|
|
$
|
49,308
|
|
|
$
|
43,093
|
|
Add: Interest expense, net of interest income
|
|
|
5,364
|
|
|
|
5,874
|
|
|
|
16,131
|
|
|
|
17,757
|
|
Add: Income taxes
|
|
|
7,913
|
|
|
|
11,320
|
|
|
|
20,513
|
|
|
|
34,883
|
|
Add: Depreciation and amortization
|
|
|
5,196
|
|
|
|
5,275
|
|
|
|
15,543
|
|
|
|
16,866
|
|
EBITDA
|
|
|
34,847
|
|
|
|
35,877
|
|
|
|
101,495
|
|
|
|
112,599
|
|
Add: Merger and going public expenses (1)
|
|
|
3,679
|
|
|
|
-
|
|
|
|
4,344
|
|
|
|
-
|
|
Add: Pension withdrawal expense (2)
|
|
|
3,698
|
|
|
|
-
|
|
|
|
3,698
|
|
|
|
-
|
|
Add: Newport Grand disposal loss (3)
|
|
|
656
|
|
|
|
-
|
|
|
|
6,541
|
|
|
|
-
|
|
Add: Share-based compensation (4)
|
|
|
(3,624
|
)
|
|
|
4,690
|
|
|
|
7,351
|
|
|
|
13,797
|
|
Add: Non-recurring litigation expenses (5)
|
|
|
2
|
|
|
|
450
|
|
|
|
1,235
|
|
|
|
1,044
|
|
Add: Legal & financial expenses for strategic review (6)
|
|
|
-
|
|
|
|
167
|
|
|
|
672
|
|
|
|
596
|
|
Add: Credit Agreement amendment expenses (7)
|
|
|
-
|
|
|
|
-
|
|
|
|
410
|
|
|
|
106
|
|
Add: Storm-related repair expenses (8)
|
|
|
134
|
|
|
|
-
|
|
|
|
347
|
|
|
|
-
|
|
Add: Expansion and pre-opening expenses (9)
|
|
|
2,139
|
|
|
|
62
|
|
|
|
2,624
|
|
|
|
95
|
|
Adjusted EBITDA
|
|
$
|
41,531
|
|
|
$
|
41,246
|
|
|
$
|
128,717
|
|
|
$
|
128,237
|
|
(1)
Merger and going public expenses primarily include legal and financial advisory costs related to the merger with Dover Downs and
costs of becoming a public company.
(2)
The pension withdrawal expense represents the accrual for the New England Teamsters Multi-employer pension plan withdrawal liability.
(3)
Newport Grand disposal loss represents the loss on the sale of the land and building, write-down of building improvements and
write-off of equipment.
(4)
Share-based compensation represents the increase (decrease) related to share-based awards classified as liability awards that
are recorded at fair value at the end of each reporting period, and the expense associated with share-based awards classified
as equity awards.
(5)
Non-recurring litigation expense represents legal expenses incurred by TRWH in connection with certain litigation matters.
(6)
Legal and financial expenses for the strategic review include expenses associated with TRWH’s review of strategic alternatives
that began in April 2017.
(7)
Credit Agreement amendment expenses include costs incurred as amendments were made to TRWH’s Credit Agreement.
(8)
Storm-related repair expenses include costs, net of insurance recoveries, associated with damage from Hurricane Nate at Hard Rock
Biloxi.
(9)
Acquisition, expansion and pre-opening expenses represent costs incurred for Tiverton Casino Hotel prior to its opening on September
1, 2018.
Liquidity and
Capital Resources
(In
thousands)
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
|
2018
|
|
|
2017
|
|
Net
cash provided by operating activities
|
|
$
|
82,045
|
|
|
$
|
76,679
|
|
Net cash
used in investing activities
|
|
$
|
(97,902
|
)
|
|
$
|
(25,266
|
)
|
Net cash
provided by (used in) financing activities
|
|
$
|
8,563
|
|
|
$
|
(35,464
|
)
|
Net cash provided
by operating activities
Net
cash provided by operating activities for the nine months ended September 30, 2018 was $82.0 million, an increase of $5.4 million
from net cash provided by operating activities for the comparable period in 2017. This increase was driven by a $6.2 million increase
in net income, partially offset by a $0.9 million decrease in operating assets and liabilities.
Net cash used
in investing activities
Net
cash used in investing activities for the nine months ended September 30, 2018 was $97.9 million, an increase of $72.6 million
from the comparable period in 2017. The change was primarily driven by an increase in the capital expenditures for the Tiverton
Casino Hotel, which opened on September 1, 2018, and the new hotel at Twin River Casino, which opened in the fourth quarter of
2018, of $60.6 million and $19.7 million, respectively. This increase is partially offset by the proceeds from the sale of land
and building for the Newport Grand disposal of $7.1 million.
Net cash used
in financing activities
Net
cash provided by financing activities for the nine months ended September 30, 2018 was $8.6 million, an increase of $44.0 million
compared to net cash used in financing activities of $35.5 million in the comparable period in 2017. This increase was primarily
attributable to an increase in borrowing under TRWH’s revolving credit facility of $41.0 million, and a decrease in repayments
on long-term debt of $2.0 million.
Capital Expenditures
For
the nine months ended September 30, 2018, TRWH’s capital expenditures were $104.9 million, including $79.0 million for the
Tiverton Casino Hotel and $20.8 million for the new hotel at Twin River Casino. TRWH anticipates that 2018 capital spending will
be approximately $141 million, including approximately $125 million for the Tiverton Casino Hotel and the new hotel at Twin River
Casino.
Working Capital
At
September 30, 2018, cash and cash equivalents and restricted cash totaled $85.9 million, compared to $93.2 million at December
31, 2017. The $7.3 million decrease was primarily a result of capital expenditure increases and a debt payment of $33.3 million
for the nine months ended September 30, 2018.
At
September 30, 2018, the net working capital balance was $41.7 million, compared to $17.8 million at December 31, 2017. This increase
of $23.9 million is primarily driven by a decrease in the current portion of the term loan of $29.7 million, partially offset
by a decrease in cash and cash equivalents and restricted cash of $7.3 million discussed above.
TRWH
will consider a potential tender offer or other return of capital transaction after the closing of the merger with Dover Downs.
TRWH
assesses liquidity in terms of the ability to generate cash to fund operating, investing, and financing activities. The primary
ongoing cash requirements will be to fund operations, capital expenditures, interest payments and investments in line with TRWH’s
business strategy. TRWH believes that future operating cash flows will be sufficient to meet future operating and internal investing
cash for the next 12 months. Furthermore, existing cash balances and availability of additional borrowings under revolving credit
facilities provide additional potential sources of liquidity should they be required.
Financing Arrangements
TRWH
had $404.6 million outstanding under its credit facility, as amended, at September 30, 2018, including $343.6 million principal
amount of its LIBOR plus 3.5% (5.79% at September 30, 2018) term loan due July 2020 and $61.0 million outstanding under TRWH’s
$100.0 million revolving credit facility that expires in January 2020. As of September 30, 2018, TRWH was in compliance with the
covenants of all of its debt agreements.
Contractual Obligations and Commitments
There have
been no material changes to TRWH’s contractual obligations and commitments outside the ordinary course of business from
those disclosed in the Dover Downs Preliminary Proxy Statement.
Off-Balance Sheet Arrangements
TRWH is not
party to any off-balance sheet transactions except for operating leases and multi-employer defined benefit plans as disclosed
within the accompanying condensed consolidated financial statements. TRWH has no guarantees or obligations other than those which
arise out of normal business operations.
Qualitative and Quantitative
Disclosures about Market Risk
TRWH’s
primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest
rates. TRWH is exposed to changes in interest rates primarily from variable rate long-term debt arrangements. TRWH does not believe
that fluctuations in interest had a material effect on its business, financial condition or results of operations during the nine
months ended September 30, 2018.
Inflation generally
affects TRWH by increasing its cost of labor. TRWH does not believe that inflation had a material effect on its business, financial
condition or results of operations during the nine months ended September 30, 2018.
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