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TABLE OF CONTENTS

Table of Contents

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)    

ý

 

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

For the quarterly period ended September 30, 2015

OR

o

 

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

For the transition period              to            

Commission File No. 001-36629

ELDORADO RESORTS, INC.
(Exact name of registrant as specified in its charter)

Nevada
(State or other jurisdiction of
incorporation or organization)
  46-3657681
(I.R.S. Employer
Identification No.)

100 West Liberty Street, Suite 1150,
Reno, Nevada 89501

(Address of principal executive offices)

(775) 328-0100
(Registrant's telephone number, including area code)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer ý   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company o

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

        The number of shares of the Registrant's Common Stock, $0.00001 par value per share, outstanding as of October 29, 2015 was 46,444,694.

   


Table of Contents


ELDORADO RESORTS, INC.

QUARTERLY REPORT FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2015

TABLE OF CONTENTS

 
   
  Page

PART I. FINANCIAL INFORMATION

   

Item 1.

 

FINANCIAL STATEMENTS

 
2

 

Consolidated Balance Sheets at September 30, 2015 (unaudited) and December 31, 2014

  2

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014 (unaudited)

  3

 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2015 and 2014 (unaudited)

  4

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014 (unaudited)

  5

 

Notes to Unaudited Consolidated Financial Statements

  6

Item 2.

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 
29

Item 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 
53

Item 4.

 

CONTROLS AND PROCEDURES

 
53

PART II. OTHER INFORMATION

 
 

Item 1.

 

LEGAL PROCEEDINGS

 
55

Item 1A.

 

RISK FACTORS

 
56

Item 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 
56

Item 3.

 

DEFAULTS UPON SENIOR SECURITIES

 
56

Item 4.

 

MINE SAFETY DISCLOSURES

 
56

Item 5.

 

OTHER INFORMATION

 
56

Item 6.

 

EXHIBITS

 
56

SIGNATURES

 
58

1


Table of Contents

PART I—FINANCIAL INFORMATION

Item 1.    Financial Statements.


ELDORADO RESORTS, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

 
  September 30,
2015
  December 31,
2014
 
 
  (unaudited)
   
 

ASSETS

             

Current Assets:

             

Cash and cash equivalents

  $ 48,751   $ 87,604  

Restricted cash

    1,640     5,734  

Escrow cash

    55,460      

Accounts receivable, net

    9,146     7,112  

Due from unconsolidated affiliates

    419     362  

Inventories

    7,165     7,234  

Prepaid expenses and other

    9,757     9,447  

Total current assets

    132,338     117,493  

Restricted cash

        2,500  

Investment in and advances to unconsolidated affiliates

    17,145     14,009  

Property and equipment, net

    442,221     456,139  

Gaming licenses and other intangibles, net

    486,792     491,913  

Goodwill

    66,826     66,826  

Non-operating real property

    16,419     16,419  

Other assets, net

    7,204     6,260  

Total assets

  $ 1,168,945   $ 1,171,559  

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current Liabilities:

             

Current portion of long-term debt

  $ 4,256   $ 32  

Accounts payable

    13,020     12,184  

Accrued interest

    6,876     27,469  

Income taxes payable

    103     137  

Accrued gaming taxes and assessments

    12,671     12,998  

Accrued payroll

    11,411     9,441  

Accrued other liabilities

    18,845     26,788  

Deferred income taxes

    2,608     2,608  

Due to unconsolidated affiliates

    177     187  

Total current liabilities

    69,967     91,844  

Long-term debt, less current portion

    786,298     775,059  

Deferred income taxes

    147,645     144,439  

Other liabilities

    8,228     8,595  

Total liabilities

    1,012,138     1,019,937  

Commitments and contingencies (Note 10)

             

Stockholders' Equity:

             

Common stock, 100,000,000 shares authorized, 46,444,694 issued and outstanding, par value $0.00001

         

Paid-in capital

    167,012     165,857  

Accumulated deficit

    (10,395 )   (14,425 )

Accumulated other comprehensive income

    87     87  

Stockholders' equity before non-controlling interest

    156,704     151,519  

Non-controlling interest

    103     103  

Total stockholders' equity

    156,807     151,622  

Total liabilities and stockholders' equity

  $ 1,168,945   $ 1,171,559  

   

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

2


Table of Contents


ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share data)

(unaudited)

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2015   2014   2015   2014  

Revenues:

                         

Casino

  $ 156,357   $ 63,457   $ 460,807   $ 156,280  

Pari-mutuel commissions

    3,781     446     8,042     446  

Food and beverage

    24,040     15,972     69,717     45,348  

Hotel

    9,193     7,555     24,671     20,747  

Other

    6,165     3,098     17,464     7,515  

    199,536     90,528     580,701     230,336  

Less—promotional allowances

    (15,996 )   (11,579 )   (47,077 )   (32,608 )

Net operating revenues

    183,540     78,949     533,624     197,728  

Expenses:

                         

Casino

    90,398     34,596     268,282     83,877  

Pari-mutuel commissions

    3,625     520     8,414     520  

Food and beverage

    12,461     8,462     36,384     22,889  

Hotel

    2,340     2,109     6,843     5,969  

Other

    4,079     2,324     10,513     5,747  

Marketing and promotions

    7,816     5,262     22,321     14,148  

General and administrative

    26,937     14,387     81,595     36,016  

Depreciation and amortization

    13,954     5,283     42,454     13,557  

Total operating expenses

    161,610     72,943     476,806     182,723  

Loss on sale or disposal of property

    (6 )   (3 )   (2 )   (3 )

Acquisition charges

    (380 )   (4,463 )   (717 )   (6,916 )

Equity in income of unconsolidated affiliates

    2,548     1,238     3,136     3,019  

Operating income

    24,092     2,778     59,235     11,105  

Other Income (Expense):

                         

Loss on early retirement of debt

    (1,790 )       (1,790 )    

Interest expense, net

    (14,482 )   (5,647 )   (48,946 )   (13,398 )

Total other expense

    (16,272 )   (5,647 )   (50,736 )   (13,398 )

Net income (loss) before income taxes

    7,820     (2,869 )   8,499     (2,293 )

Provision for income taxes

    (2,421 )   (1,195 )   (4,469 )   (1,195 )

Net income (loss)

  $ 5,399   $ (4,064 ) $ 4,030   $ (3,488 )

Net income (loss) per share of common stock:

                         

Basic

  $ 0.12   $ (0.16 ) $ 0.09   $ (0.14 )

Diluted

  $ 0.12   $ (0.16 ) $ 0.09   $ (0.14 )

Weighted average number of shares outstanding:

                         

Basic

    46,516,614     26,075,022     46,509,369     24,242,791  

Diluted

    46,763,589     26,075,022     46,620,959     24,242,791  

   

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

3


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ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)

(unaudited)

 
  Three Months
Ended September 30,
  Nine Months
Ended September 30,
 
 
  2015   2014   2015   2014  

Net income (loss)

  $ 5,399   $ (4,064 ) $ 4,030   $ (3,488 )

Other comprehensive income (loss), net of tax:

                         

Defined benefit pension plan:

                         

Amortization of net gain

        1         1  

Minimum pension liability adjustment of unconsolidated affiliate

        (55 )       (166 )

Comprehensive income (loss)

  $ 5,399   $ (4,118 ) $ 4,030   $ (3,653 )

   

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

4


Table of Contents


ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

 
  Nine Months Ended
September 30,
 
 
  2015   2014  

CASH FLOWS FROM OPERATING ACTIVITIES:

             

Net income (loss)

  $ 4,030   $ (3,488 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

             

Depreciation and amortization

    42,454     13,786  

Amortization of debt issuance costs and (premium) discount

    (5,259 )   244  

Loss on early retirement of debt

    1,790      

Equity in income of unconsolidated affiliates

    (3,136 )   (3,019 )

Distributions from unconsolidated affiliate

        509  

Stock-based compensation expense

    1,155      

Loss on sale or disposal of property

    2     3  

Provision for bad debts

    46     237  

Change in fair value of acquisition related contingencies

    52      

Provision for deferred income taxes

    3,206     1,190  

Change in operating assets and liabilities:

             

Restricted cash

    4,094     1,913  

Accounts receivable

    (2,137 )   (563 )

Inventories

    69     (135 )

Prepaid expenses and other

    (310 )   1,177  

Accounts payable

    642     1,040  

Interest payable

    (20,593 )   5,758  

Income taxes payable

    (34 )    

Accrued and other liabilities and due to unconsolidated affiliates

    (5,543 )   1,760  

Net cash provided by operating activities

    20,528     20,412  

CASH FLOWS FROM INVESTING ACTIVITIES:

             

Capital expenditures, net of payables

    (24,414 )   (4,565 )

Proceeds from sale of property and equipment

    6      

Cash acquired in acquisition, net of cash used to repurchase stock of $30 million

        53,553  

Cash escrow deposit required for acquisition

    (55,460 )    

Decrease in restricted cash related to credit support

    2,500      

(Increase) decrease in other assets, net

    (944 )   94  

Net cash (used in) provided by investing activities

    (78,312 )   49,082  

CASH FLOWS FROM FINANCING ACTIVITIES:

             

Proceeds from issuance of Senior Notes

    375,000      

Proceeds from issuance of New Term Loan

    425,000      

Borrowings under New Revolving Credit Facility

    40,000      

Retirement of long-term debt

    (728,664 )    

Principal payments on New Revolving Credit Facility and New Term Loan

    (23,063 )    

Payments of long-term debt

        (2,500 )

Payments under capital lease obligations

    (29 )   (217 )

Payment of financing and issuance costs

    (25,223 )    

Premium payment on early retirement of debt

    (44,090 )    

Cash distributions to members

        (576 )

Proceeds from exercise of stock options

        115  

Repurchase of stock

        (5,000 )

Net cash provided by (used in) financing activities

    18,931     (8,178 )

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

    (38,853 )   61,316  

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

    87,604     29,813  

CASH AND CASH EQUIVALENTS, END OF PERIOD

  $ 48,751   $ 91,129  

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

             

Interest paid

  $ 74,806   $ 7,377  

Cash paid during period for income taxes

    1,102      

Payables for purchase of property and equipment

    194     431  

Noncash distribution of Tamarack investment

        5,479  

   

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

5


Table of Contents


ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

Organization

        The accompanying unaudited consolidated financial statements include the accounts of Eldorado Resorts, Inc. ("ERI" or the "Company"), a Nevada corporation formed in September 2013, and its consolidated subsidiaries. As explained in greater detail in Note 2, ERI was formed in September 2013 to be the parent company following the merger of wholly owned subsidiaries of the Company into Eldorado HoldCo LLC ("HoldCo"), a Nevada limited liability company formed in 2009 that is the parent company of Eldorado Resorts LLC ("Resorts"), and MTR Gaming Group, Inc. ("MTR Gaming"), a Delaware corporation incorporated in 1988 (the "Merger"). Effective upon the consummation of the Merger on September 19, 2014 (the "Merger Date"), HoldCo and MTR Gaming each became a wholly owned subsidiary of ERI and, as a result of such transactions, Resorts became an indirect wholly owned subsidiary of ERI. The Merger was accounted for as a reverse acquisition of MTR Gaming by HoldCo under accounting principles generally accepted in the United States ("US GAAP"). As a result, HoldCo is considered the acquirer of MTR Gaming for accounting purposes. The accompanying unaudited consolidated financial statements for periods prior to the Merger Date are those of HoldCo and its subsidiaries, and for periods subsequent to the Merger Date, include MTR Gaming and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

        Resorts owns and operates the Eldorado Hotel and Casino, a premier hotel, casino and entertainment facility centrally located in downtown Reno, Nevada (the "Eldorado Reno"), which opened for business in 1973. Resorts also owns Eldorado Resort Casino Shreveport ("Eldorado Shreveport"), a 403-room all suite art deco-style hotel and a tri-level riverboat dockside casino complex situated on the Red River in Shreveport, Louisiana, which commenced operations under its previous owners in December 2000.

        Resorts also owns a 48.1% interest in the Circus and Eldorado Joint Venture, LLC (the "Silver Legacy Joint Venture") which owns the Silver Legacy Resort Casino (the "Silver Legacy"), a major themed hotel and casino situated between and seamlessly connected at the mezzanine level to the Eldorado Reno and Circus Circus Reno, a hotel and casino owned and operated by Galleon, Inc. ("Galleon"), an indirect, wholly owned subsidiary of MGM Resorts International ("MGM"). Galleon owns 50% of the interests of the Silver Legacy Joint Venture. In addition, certain of our subsidiaries have entered into an agreement with subsidiaries of MGM to acquire the remaining 50% of the Silver Legacy Joint Venture and all of the assets and properties of Circus Circus Reno (the "Circus Reno/Silver Legacy Purchase"), and we have guaranteed the obligations of such subsidiaries thereunder (see Note 13). We expect to acquire the remaining 1.9% indirect interest in the Silver Legacy Joint Venture that is held by certain of our affiliates in connection with the consummation of Circus Reno/Silver Legacy Purchase.

        Resorts previously owned a 21.3% interest in Tamarack Crossing, LLC ("Tamarack"), a Nevada limited liability company that owned and operated Tamarack Junction, a casino in south Reno which commenced operations on September 4, 2001. On September 1, 2014, and as a condition to closing the Merger, Resorts distributed to HoldCo, and HoldCo subsequently distributed to its members on a pro rata basis, Resorts' interest in Tamarack. No gain or loss was recognized as a result of such distribution because the distribution was in the amount of the book value of Tamarack and totaled $5.5 million.

        MTR Gaming is a hospitality and gaming company with racetrack, gaming and hotel properties in West Virginia, Pennsylvania and Ohio. MTR Gaming, through its wholly owned subsidiaries, owns and

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Organization and Basis of Presentation (Continued)

operates Mountaineer Casino Racetrack & Resort in Chester, West Virginia ("Mountaineer"), Presque Isle Downs & Casino in Erie, Pennsylvania ("Presque Isle Downs") and Scioto Downs in Columbus, Ohio. Scioto Downs, through its subsidiary, RacelineBet, Inc., also operates Racelinebet.com, a national account wagering service that offers online and telephone wagering on horse races as a marketing affiliate of TwinSpires.com, an affiliate of Churchill Downs, Inc.

Basis of Presentation

        The accompanying unaudited consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with US GAAP for interim financial information with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, all of which are normal and recurring, considered necessary for a fair presentation and have been included herein. The results of operations for these interim periods are not necessarily indicative of the operating results for other quarters, for the full year or any future period.

        The executive decision makers of the Company review operating results, assess performance and make decisions on a "significant market" basis. Accordingly, the Company considers the Eldorado Reno, Eldorado Shreveport and MTR Gaming properties to be operating segments. Pending the consummation of the Circus Reno/Silver Legacy Purchase, which is expected to occur in November 2015, the Company intends to reassess its segment reporting. Based on this reassessment, the Company's segment reporting may change for the year ended December 31, 2015.

        These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

Recently Issued Accounting Pronouncements

        In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-9, "Revenue from Contracts with Customers", which provides guidance for revenue recognition. The new standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue 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. The standard is designed to create greater comparability for financial statement users across industries and jurisdictions and also requires enhanced disclosures. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 with early adoption permitted effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company is currently evaluating the effects, if any, adoption of this guidance will have on its consolidated financial statements.

        In February 2015, the FASB issued ASU No. 2015-2, "Consolidation: Amendments to the Consolidation Analysis" (Topic 810) which provides guidance to companies in evaluating whether certain legal entities should be included in their consolidated financial statements. This guidance is effective for annual periods beginning after December 15, 2015. Early adoption is permitted, including

7


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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Organization and Basis of Presentation (Continued)

adoption in an interim period. The Company believes the effects, if any, of the adoption of this guidance will not have a material impact on its consolidated financial statements.

        In April 2015, the FASB issued ASU No. 2015-3, "Interest—Imputation of Interest" (Subtopic 835-30) which requires debt issuance costs be presented in the balance sheet as a direct reduction of the associated debt obligation, with the amortization of such costs being reported as a component of interest expense. The description of the debt obligation will also include the effective interest rate resulting from the amortization of debt issuance costs. This guidance is effective for annual periods beginning after December 15, 2015 and interim periods within such annual periods. Early adoption is permitted, including adoption in an interim period. The new guidance is to be adopted on a retrospective basis with appropriate disclosure reflecting a change in accounting principle. The Company adopted of this guidance during the third quarter of 2015 in conjunction with the refinancing of the Company's debt (see Notes 5 and 7). The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

        In September 2015, the FASB issued ASU No. 2015-16, "Business Combinations" (Topic 805) which requires that an acquirer retrospectively adjust provisional amounts recognized in a business combination during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in the update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The Company believes the effects, if any, of the adoption of this guidance will not have a material impact on its consolidated financial statements.

Reclassifications

        A $3.8 million reclassification from "Other Assets" to a reduction of "Long-Term Debt" associated with the aforementioned adoption of ASU No. 2015-3, "Interest—Imputation of Interest," have been made to the 2014 consolidated financial statements to conform to the 2015 presentation and have no effect on previously reported net income (loss).

Note 2. MTR Gaming Merger and Purchase Accounting

        The Merger has been accounted for as a reverse acquisition of MTR Gaming by HoldCo under which HoldCo is considered the acquirer for accounting purposes.

Consideration Transferred

        The total consideration paid was $103.0 million. The purchase consideration in a reverse acquisition was determined with reference to the value of equity the accounting acquirer, HoldCo, would have had to issue to the owners of the accounting acquiree, MTR Gaming, to give them the same percentage interest in the combined entity. However, in a reverse acquisition between a public

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2. MTR Gaming Merger and Purchase Accounting (Continued)

company as the legal acquirer and a private company as the accounting acquirer, the fair value of the legal acquirer's publicly traded stock generally is a more reliable determination of the fair value of the purchase consideration than the fair value of the accounting acquirer's untraded equity security, and, as such, was used in calculating the purchase consideration. Accordingly, the following table provides the calculation of the purchase price using the fair value of the outstanding common stock of MTR Gaming based on the closing stock price of $4.43 on the Merger Date, as well as a reconciliation of the total shares outstanding on the Merger Date.

ERI Outstanding Share Calculation:

       

Shares issued to HoldCo(1)

    23,286,202  

Number of MTR Gaming shares outstanding on the Merger Date(2)

    28,386,084  

MTR Gaming RSUs that vested upon closing of the Merger(3)

    499,179  

Total ERI shares outstanding—before share repurchase

    52,171,465  

MTR Gaming shares acquired at $6.05 per share based on $35.0 million cash election(4)

    (5,785,123 )

Total ERI shares outstanding at Merger Date(5)

    46,386,342  

Resorts % ownership

    50.20 %

MTR Gaming % ownership

    49.80 %

Consideration Transferred (dollars in thousands, except stock price)

   
 
 

Number of MTR Gaming shares outstanding at the Merger Date

    28,386,084  

MTR Gaming RSUs that vested upon closing of the Merger

    499,179  

MTR Gaming shares acquired at $6.05 per share based on $35.0 million cash election

    (5,785,123 )

Total net MTR Gaming shares

    23,100,140  

FMV of MTR Gaming common stock at Merger Date

  $ 4.43  

Fair value of MTR Gaming shares

    102,334  

Fair value of MTR Gaming stock options(3)

    677  

Total consideration transferred

  $ 103,011  

(1)
The number of shares issued to members of HoldCo in the Mergers as merger consideration was determined pursuant to the terms of the merger agreement. The shares have been adjusted based upon the final review, as defined in the merger agreement. As a result, 25,290 escrow shares previously issued were returned to authorized and unissued prior to December 31, 2014.

(2)
Number of shares of MTR Gaming common stock issued and outstanding immediately prior to closing.

(3)
Pursuant to the MTR Gaming 2010 Long-Term Incentive Plan, immediately prior to closing, all outstanding stock options and MTR Gaming RSUs vested and became immediately exercisable. All vested MTR Gaming RSUs were exchanged for one share of ERI common stock. All outstanding stock options became exercisable for shares of ERI common stock with the same terms as the previous awards.

(4)
Total cash election includes $30.0 million paid by MTR Gaming and $5.0 million paid by HoldCo on the Merger Date.

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2. MTR Gaming Merger and Purchase Accounting (Continued)

(5)
The number of shares issued and outstanding, after settlement of the escrow shares, as determined pursuant to the terms of the merger agreement.

Final Purchase Price Allocation

        The following table summarizes the fair values of the assets acquired and liabilities assumed at the Merger Date. The fair values were based on management's analysis, including work performed by third-party valuation specialists. The following table summarizes the final purchase price allocation of the acquired assets and assumed liabilities as recorded at fair value on the Merger Date (dollars in thousands):

Current and other assets

  $ 75,031  

Property and equipment

    289,211  

Goodwill

    66,826  

Intangible assets(1)

    473,000  

Other noncurrent assets

    20,381  

Total assets

    924,449  

Current liabilities

    46,446  

Long-term debt(2)

    624,877  

Deferred income taxes(3)

    143,104  

Other noncurrent liabilities

    7,011  

Total liabilities assumed

    821,438  

Net assets acquired

  $ 103,011  

(1)
Intangible assets consist of gaming licenses, trade names and customer loyalty programs.

(2)
Long-term debt was comprised of MTR Second Lien Notes totaling $570.7 million.

(3)
Deferred tax liabilities were derived based on fair value adjustments for property and equipment, identified intangibles, deferred financing costs, certain long term liabilities and long-term debt.

        Goodwill, the excess of the purchase price of acquiring MTR Gaming over the fair market value of the net assets acquired, in the amount of $66.8 million, was recorded as of the Merger Date. The Company considers the goodwill to represent benefits expected to be realized as a result of the Merger.

Pro Forma Information

        The following table includes the pro forma results for the three and nine months ended September 30, 2014 which gives effect to the Merger as if it had occurred on January 1, 2014 and reflect proforma adjustments that are expected to have a continuing impact on the results of operations

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2. MTR Gaming Merger and Purchase Accounting (Continued)

of the Company and are directly attributable to the Merger (amounts in thousands, except per share data):

 
  Three Months Ended
September 30, 2014
  Nine Months Ended
September 30, 2014
 
 
  (unaudited)
 

Net revenues

  $ 191,098   $ 549,605  

Net (loss) income

    (1,889 )   1,950  

Net (loss) income per common share:

             

Basic

  $ (0.04 ) $ 0.04  

Diluted

    (0.04 )   0.04  

Weighted shares outstanding:

             

Basic

    46,411,632     46,411,632  

Diluted

    46,493,926     46,493,926  

        These pro forma results do not necessarily represent the results of operations that would have been achieved if the Merger had taken place on January 1, 2014, nor are they indicative of the results of operations for future periods. The pro forma amounts include the historical operating results of the Company and MTR Gaming prior to the acquisition, with adjustments directly attributable to the Merger.

Note 3. Investment in Unconsolidated Affiliates

        Effective March 1, 1994, Eldorado Limited Liability Company, a Nevada limited liability company that is a subsidiary of Resorts ("ELLC") and Galleon, (each a "Partner" and, together, the "Partners"), entered into the Silver Legacy Joint Venture pursuant to a joint venture agreement (the "Original Joint Venture Agreement" and, as amended to date, the "Joint Venture Agreement") to develop the Silver Legacy. The Silver Legacy consists of a casino and hotel located in Reno, Nevada, which began operations on July 28, 1995. Each Partner owns a 50% interest in the Silver Legacy Joint Venture. The Company owns an indirect 48.1% interest in the Silver Legacy Joint Venture. The Company has entered into an agreement to purchase the 50% interest in the Silver Legacy Joint Venture owned by Galleon and expects to acquire the remaining 1.9% interest held by certain of its affiliates in connection with the acquisition of the 50% interest from Galleon. See Note 13 "Pending Acquisitions."

        In December 2014, Silver Legacy deposited $5.0 million of cash into a cash collateral account securing its obligations under its credit agreement, which reduced the credit support obligation of ELLC and Galleon to $2.5 million each and resulted in the return of $2.5 million of the $5.0 million of collateral that Resorts previously provided as credit support for Silver Legacy's obligations under its credit agreement. In August 2015, the remaining credit support obligation was released upon Silver Legacy's deposit of an additional $5.0 million. The $2.5 million collateral deposit is included in noncurrent restricted cash in the accompanying consolidated balance sheets at December 31, 2014.

        On December 16, 2013, the Silver Legacy Joint Venture entered into a new senior secured term loan facility totaling $90.5 million (the "Silver Legacy Credit Facility") to refinance its indebtedness under its then existing senior secured term loan and Silver Legacy Second Lien Notes. The Silver Legacy Credit Facility matures on November 16, 2017. In connection with the Circus Reno/Silver Legacy Purchase, we expect all amounts outstanding under the Silver Legacy Credit Facility will be paid in full and the cash collateral securing such obligations will be released.

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3. Investment in Unconsolidated Affiliates (Continued)

        Equity in income related to the Silver Legacy Joint Venture for the three and nine months ended September 30, 2015 totaled $2.5 million and $3.1 million, respectively. Equity in income for the three and nine months ended September 30, 2014 totaled $1.0 million and $2.3 million, respectively.

        Summarized information for the Company's investment in and advances to the Silver Legacy Joint Venture as of and for the nine months ended September 30, 2015 and 2014 was as follows (in thousands):

 
  September 30,
2015
  September 30,
2014
 
 
  (unaudited)
 

Beginning balance

  $ 14,009   $ 13,081  

Equity in income of unconsolidated affiliate

    3,136     2,299  

Other comprehensive loss (minimum pension liability adjustment of unconsolidated affiliate)

        (166 )

Ending balance

  $ 17,145   $ 15,214  

        Summarized balance sheet information for the Silver Legacy Joint Venture is as follows (in thousands):

 
  September 30,
2015
  December 31,
2014
 
 
  (unaudited)
   
 

Current assets

  $ 43,200   $ 30,563  

Property and equipment, net

    184,319     190,592  

Other assets, net

    4,935     6,412  

Total assets

  $ 232,454   $ 227,567  

Current liabilities

  $ 19,677   $ 18,707  

Long-term liabilities

    86,744     89,322  

Partners' equity

    126,033     119,538  

Total liabilities and partners' equity

  $ 232,454   $ 227,567  

        Summarized results of operations for the Silver Legacy Joint Venture are as follows (in thousands):

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2015   2014   2015   2014  
 
  (unaudited)
 

Net revenues

  $ 38,028   $ 34,447   $ 97,665   $ 97,540  

Operating expenses

    (29,953 )   (29,645 )   (82,850 )   (84,667 )

Operating income

    8,075     4,802     14,815     12,873  

Other expense

    (2,801 )   (2,778 )   (8,319 )   (8,273 )

Net income

  $ 5,274   $ 2,024   $ 6,496   $ 4,600  

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 4. Stock-Based Compensation

        The Company accounts for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation. Total stock-based compensation expense recognized was $0.3 million and $1.2 million during the three and nine months ended September 30, 2015. There was no stock based compensation in 2014. These amounts are included in general and administrative expenses in the Company's consolidated statements of operations.

        The Board of Directors ("BOD") adopted the Eldorado Resorts, Inc. 2015 Equity Incentive Plan ("2015 Plan") on January 23, 2015 and our shareholders subsequently approved the adoption of the 2015 Plan on June 23, 2015. The Plan permits the granting of stock options, including incentive stock options ("ERI Stock Options"), stock appreciation rights ("SARs"), restricted stock or restricted stock units ("RSUs"), performance awards, and other stock-based awards and dividend equivalents. ERI Stock Options primarily vest ratably over three years and RSUs granted to employees and executive officers primarily vest and become non-forfeitable upon the third anniversary of the date of grant. RSUs granted to non-employee directors vest immediately and are delivered upon the date that is the earlier of termination of service on the BOD or the consummation of a change of control of the Company. The performance awards relate to the achievement of defined levels of performance and are generally measured over a one or two-year performance period depending upon the award agreement. If the performance award levels are achieved, the awards earned will vest and become payable at the end of the vesting period, defined as either a one or two calendar year period following the performance period. Other stock-based awards will consist of any right which is not an ERI Stock Option, SAR, RSU, or performance award, and an award based on shares of the Company's common stock.

        On January 23, 2015, the Compensation Committee of the BOD of the Company approved the grant of 685,606 RSUs with a fair value of $4.03 per unit, the NASDAQ average price per share on that date, to executive officers and certain key employees under the 2015 Plan, and the grant of 89,900 RSUs with a fair value of $4.03 per unit, the NASDAQ average price per share on that date, to non-employee members of the BOD under the 2015 Plan. Such awards became effective upon our shareholders' approval of the 2015 Plan on June 23, 2015.

        On September 19, 2014, as a result of the Merger, all outstanding MTR Gaming stock options ("MTR Stock Options") vested (to the extent not already vested) and converted into an option or right to purchase the same number of shares of ERI common stock (at the same exercise price per share as in effect prior to such conversion). All other terms, except vesting requirements, applicable to such stock options remain the same.

        A summary of the MTR Stock Option activity for the nine months ended September 30, 2015 is as follows:

 
  Options   Range of Exercise
Prices
  Weighted-Average
Exercise
Price
  Weighted-Average
Remaining
Contractual Life
  Aggregate
Intrinsic
Value
 
 
   
   
   
  (in years)
  (in millions)
 

Outstanding as of December 31, 2014

    398,200   $2.44 - $16.27   $ 7.88              

Expired

    (86,000 ) $11.30   $ 11.30              

Outstanding and Exercisable as of September 30, 2015

    312,200   $2.44 - $16.27   $ 6.94     3.72   $ 0.9  

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 4. Stock-Based Compensation (Continued)

        A summary of the RSU activity for the nine months ended September 30, 2015 is as follows:

 
  RSUs   Weighted-Average
Grant Date
Fair Value
  Weighted-Average
Remaining
Contractual Life
  Aggregate
Fair
Value
 
 
   
   
  (in years)
  (in millions)
 

Unvested outstanding as of December 31, 2014

      $          

Granted

    778,440   $ 4.05              

Vested

    (89,900 ) $ 4.03              

Forfeited

                     

Unvested outstanding as of September 30, 2015

    688,540   $ 4.05     2.33   $ 6.2  

        As of September 30, 2015, the Company had approximately $2.2 million of unrecognized compensation expense related to unvested RSUs that is expected to be recognized over a weighted-average period of approximately 2.33 years.

Note 5. Other and Intangible Assets, net

        Other and intangible assets, net, consisted of the following amounts (in thousands):

 
  September 30,
2015
  December 31,
2014
 
 
  (unaudited)
   
 

Goodwill

  $ 66,826   $ 66,826  

Gaming licenses (indefinite-lived)

  $ 482,074   $ 482,074  

Trade names

    6,700     6,700  

Customer loyalty program

    4,800     4,800  

    493,574     493,574  

Accumulated amortization trade names

    (1,982 )   (547 )

Accumulated amortization customer loyalty programs

    (4,800 )   (1,114 )

Total gaming licenses and other intangible assets, net

  $ 486,792   $ 491,913  

Land held for development

  $ 906   $ 906  

Other

    6,298     5,354  

Total other assets, net

  $ 7,204   $ 6,260  

        Goodwill, the excess of the purchase price of acquiring MTR Gaming over the fair market value of the net assets acquired, in the amount of $66.8 million was recorded as of the Merger Date. For financial reporting purposes, goodwill is not amortized, but is reviewed no less than annually or when events or circumstances indicate the carrying value might exceed the market value to determine if there has been an impairment in the recorded value.

        The gaming licenses represents intangible assets acquired from the purchase of a gaming entity located in a gaming jurisdiction where competition is limited, such as when only a limited number of gaming operators are allowed to operate. Included in gaming licenses are the gaming and racing licenses of Mountaineer, Presque Isle Downs and Scioto Downs totaling $461.5 million, which reflects

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 5. Other and Intangible Assets, net (Continued)

the fair value of the licenses calculated as of the Merger Date, as well as the Eldorado Shreveport gaming license in the amount of $20.6 million as of September 30, 2015 and December 31, 2014. Gaming license rights are not subject to amortization as the Company has determined that they have an indefinite useful life.

        Trade names are amortized on a straight-line basis over a 3.5 year useful life and the customer loyalty program was amortized on a straight-line basis over a one year useful life. Amortization expense with respect to trade names and the customer loyalty program for the three and nine months ended September 30, 2015 was $1.5 million and $5.0 million, respectively, and $0.2 million and $1.7 million for the three and nine months ended September 30, 2014, respectively, which is included in depreciation and amortization in the accompanying unaudited consolidated statements of operations. Based upon the amortizable intangible assets as of September 30, 2015, the estimated aggregate future amortization expense is $0.5 million for the remainder of 2015, $1.9 million for the years ended December 31, 2016 and 2017 and $0.4 million for the year ended December 31, 2018.

Note 6. Income Taxes

        Prior to the Merger Date, the Company was taxed as a partnership under the Internal Revenue Code pursuant to which income taxes were primarily the responsibility of the partners. On September 19, 2014, in connection with the Merger, the Company became a C corporation subject to federal and state corporate-level income taxes at prevailing corporate tax rates. The Company files a US federal tax return, and various state and local income tax returns. With few exceptions, the Company is no longer subject to US federal or state and local tax examinations by tax authorities for years before 2011.

        The Company estimates an annual effective income tax rate based on projected results for the year and applies this rate to income before taxes to calculate income tax expense. Any refinements made due to subsequent information that affects the estimated annual effective income tax rate are reflected as adjustments in the current period. The income tax provision results in an effective tax rate that has an unusual relation to pretax income (loss). This is due to the federal and state valuation allowances on deferred tax assets as discussed below.

        The difference between the effective rate and the statutory rate is attributed primarily to the federal and state valuation allowances on deferred tax assets. As a result of net operating losses and the net deferred tax asset position (after exclusion of certain deferred tax liabilities that generally cannot be offset against deferred tax assets, known as "Naked Credits"), the Company expects to continue to provide for a full valuation allowance against substantially all of the net federal and state deferred tax assets.

        For income tax purposes the Company amortizes or depreciates certain assets that have been assigned an indefinite life for book purposes. The incremental amortization or depreciation deductions for income tax purposes result in an increase in certain deferred tax liabilities that cannot be used as a source of future taxable income for purposes of measuring the Company's need for a valuation allowance against the net deferred tax assets. Therefore, we expect to record non cash deferred tax expense as we amortize these assets for tax purposes.

        During the three and nine months ended September 30, 2015, the Company's tax expense was $2.4 million and $4.5 million, respectively. During the three and nine months ended September 30,

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 6. Income Taxes (Continued)

2014, the Company's tax expense was $1.2 million. As of September 30, 2015, there are no unrecognized tax benefits and the Company does not expect a significant increase or decrease to the total amounts of unrecognized tax benefits within the next twelve months.

Note 7. Long-Term Debt

        Long-term debt consisted of the following (in thousands):

 
  September 30,
2015
  December 31,
2014
 
 
  (unaudited)
   
 

Senior Notes

  $ 375,000   $  

Less: Unamortized debt issuance costs

    (9,128 )    

Net

    365,872      

New Term Loan

   
423,938
   
 

Less: Unamortized discount and debt issuance costs

    (14,709 )    

Net

    409,229      

New Revolving Credit Facility

   
18,000
   
 

Less: Unamortized debt issuance costs

    (2,553 )    

Net

    15,447      

Resorts Senior Secured Notes

   
   
168,000
 

Less: Unamortized discount and debt issuance costs

        (3,771 )

Net

        164,229  

MTR Second Lien Notes

   
   
560,664
 

Add: Unamortized premium

        50,163  

Net

        610,827  

Capital leases

   
6
   
35
 

Less: Current portion

    (4,256 )   (32 )

Total long-term debt

  $ 786,298   $ 775,059  

        Scheduled maturities of long-term debt are $18.0 million in 2020, $395.3 million in 2022 and $375.0 million in 2023. Debt issuance costs and the discount associated with the issuance of the Senior Notes, New Term Loan and New Revolving Credit Facility (as such terms are defined below) in July 2015 totaled $25.2 million. Amortization of debt issuance costs is computed using the effective interest method, over the term of the bonds, and is included in interest expense on the accompanying unaudited consolidated statements of operations. Amortization of the debt issuance costs and the discount associated with the Senior Notes and New Credit Facility (as defined below) totaled $0.7 million for the three and nine months ended September 30, 2015.

        Amortization of Resorts' bond costs was computed using the straight-line method, which approximates the effective interest method, over the term of the bonds, and was included in interest expense on the accompanying unaudited consolidated statements of operations. Amortization expense

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 7. Long-Term Debt (Continued)

with respect to deferred financing costs on Resorts Senior Secured Notes (as defined below) amounted to $0.5 million and $0.6 million for each of the nine months ended September 30, 2015 and 2014. Amortization expense with respect to deferred financing costs on Resorts Senior Secured Notes amounted to $0.1 and $0.2 million for the three months ended September 30, 2015 and 2014, respectively.

        Unamortized costs and discounts associated with the Resorts Senior Secured Notes totaled $3.3 million as of the July 23, 2015 refinancing date. Unamortized premiums associated with the MTR Second Lien Notes totaled $43.8 million as of the July 23, 2015 refinancing date.

Refinancing Transaction and Senior Notes

        On July 23, 2015, the Company issued $375 million in aggregate principal amount of 7.0% senior notes due 2023 ("Senior Notes") pursuant to the indenture, dated as of July 23, 2015 (the "Indenture"), at an issue price equal to 100.0% of the aggregate principal amount of the Senior Notes. The Senior Notes are guaranteed by all of the Company's direct and indirect restricted subsidiaries other than immaterial subsidiaries. The Senior Notes will mature on August 1, 2023, with interest payable semi-annually in arrears on February 1 and August 1 of each year.

        The Company used, or will use, the net proceeds from the Senior Notes offering together with borrowings under the New Term Loan and the New Revolving Credit Facility (as defined below) to (i) purchase or otherwise redeem (a) all of the outstanding Resorts Senior Secured Notes and (b) all of the outstanding MTR Second Lien Notes, (ii) pay a portion of the purchase price for the Circus Reno/Silver Legacy Purchase and repay all amounts outstanding under the Silver Legacy Joint Venture credit facility, and (iii) pay fees and costs associated with such transactions. Net proceeds from the Senior Notes offering equal to $50.0 million, plus interest to the latest possible redemption date, were placed in escrow, to be released only if the Circus Reno/Silver Legacy Purchase is consummated on or prior to April 1, 2016; otherwise, $50.0 million in aggregate principal amount of the Senior Notes will be subject to a special mandatory redemption, on a pro rata basis, at a redemption price equal to 100.0% of the principal amount thereof plus accrued and unpaid interest to, but not including, the redemption date. The Company recognized an $3.6 million loss on the retirement of the Resorts Senior Secured Notes and a $1.8 million gain on the retirement of the MTR Second Lien Notes resulting in a $1.8 million net loss on early retirement of debt during the three and nine months ended September 30, 2015.

        On or after August 1, 2018, the Company may redeem all or a portion of the Senior Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of the principal amount) set forth below plus accrued and unpaid interest and additional interest, if any, on the Senior Notes redeemed, to the applicable redemption date, if redeemed during the twelve month period beginning on August 1 of the years indicated below:

Year
  Percentage  

2018

    105.250 %

2019

    103.500 %

2020

    101.750 %

2021 and thereafter

    100.000 %

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 7. Long-Term Debt (Continued)

        Prior to August 1, 2018, the Company may redeem all or a portion of the Senior Notes at a price equal to 100% of the Senior Notes redeemed plus accrued and unpaid interest to the redemption date, plus a make-whole premium. At any time prior to August 1, 2018, the Company is also entitled to redeem up to 35% of the original aggregate principal amount of the Senior Notes with proceeds of certain equity financings at a redemption price equal to 107% of the principal amount of the Senior Notes redeemed, plus accrued and unpaid interest. If the Company experiences certain change of control events (as defined in the Indenture), it must offer to repurchase the Senior Notes at 101% of their principal amount, plus accrued and unpaid interest to the applicable repurchase date. If the Company sells assets under certain circumstances and does not use the proceeds for specified purposes, the Company must offer to repurchase the Senior Notes at 100% of their principal amount, plus accrued and unpaid interest to the applicable repurchase date. The Senior Notes are subject to redemption imposed by gaming laws and regulations of applicable gaming regulatory authorities.

        The Indenture contains certain covenants limiting, among other things, the Company's ability and the ability of its subsidiaries (other than its unrestricted subsidiaries) to:

    pay dividends or distributions or make certain other restricted payments or investments;

    incur or guarantee additional indebtedness or issue disqualified stock or create subordinated indebtedness that is not subordinated to the Senior Notes or the guarantees of the Senior Notes;

    create liens;

    transfer and sell assets;

    merge, consolidate, or sell, trainer or otherwise dispose of all or substantially all of the Company's assets;

    enter into certain transactions with affiliates;

    engage in lines of business other than the Company's core business and related businesses; and

    create restrictions on dividends or other payments by restricted subsidiaries.

        These covenants are subject to a number of exceptions and qualifications as set forth in the Indenture. The Indenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on such Senior Notes to be declared due and payable. As of September 30, 2015, the Company was in compliance with all of the covenants under the Indenture relating to the Senior Notes.

New Credit Facility

        On July 23, 2015, the Company entered into a new $425.0 million seven year term loan (the "New Term Loan") and a new $150.0 million five year revolving credit facility (the "New Revolving Credit Facility" and, together with the New Term Loan, the "New Credit Facility"). Also on July 23, 2015, the Company borrowed $40.0 million under the New Revolving Credit Facility. As of September 30, 2015, the Company had $423.9 million outstanding on the New Term Loan and $18.0 million in borrowings outstanding under the New Revolving Credit Facility. The Company had $132.0 million of available borrowing capacity under its New Revolving Credit Facility as of September 30, 2015. At September 30, 2015, the interest rate on the New Term Loan was 4.25% and the interest rate on the New Revolving Credit Facility was 3.25%.

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 7. Long-Term Debt (Continued)

        The New Term Loan bears interest at a rate per annum of, at the Company's option, either (x) LIBOR plus 3.25%, with a LIBOR floor of 1.0%, or (y) a base rate plus 2.25%. Borrowings under the New Revolving Credit Facility bear interest at a rate per annum of, at the Company's option, either (x) LIBOR plus a spread ranging from 2.5% to 3.25% or (y) a base rate plus a spread ranging from 1.5% to 2.25%, in each case with the spread determined based on the Company's total leverage ratio. Additionally, the Company will pay a commitment fee on the unused portion of the New Revolving Credit Facility not being utilized in the amount of 0.50% per annum.

        The New Credit Facility is secured by substantially all of the Company's personal property assets and substantially all personal property assets of each subsidiary that guaranties the New Credit Facility (other than certain subsidiary guarantors designated as immaterial or restricted subsidiaries) (the "New Credit Facility Guarantors"), whether owned on the closing date of the New Credit Facility or thereafter acquired, and mortgages on the real property and improvements owned or leased us or the New Credit Facility Guarantors. The New Credit Facility is also secured by a pledge of all of the equity owned by us and the New Credit Facility Guarantors (subject to certain gaming law restrictions). The credit agreement governing the New Credit Facility contains a number of customary covenants that, among other things, restrict, subject to certain exceptions, the Company's ability and the ability of the New Credit Facility Guarantors to incur additional indebtedness, create liens on collateral, engage in mergers, consolidations or asset dispositions, make distributions, make investments, loans or advances, engage in certain transactions with affiliates or subsidiaries or make capital expenditures.

        The credit agreement governing the New Credit Facility also includes requirements the Company maintains a maximum total leverage ratio and a minimum interest coverage ratio (adjusting over time). The Company is required to maintain a maximum total leverage ratio of 6.75 to 1.00 from the closing date through December 31, 2015, 6.00 to 1.00 from January 1, 2016 to December 31, 2017 and 5.00 to 1.00 thereafter. In addition, the Company is required to maintain a minimum interest coverage ratio of 2.50 to 1.00 from the closing date through December 31, 2015, and 2.75 to 1.00 from January 1, 2016 through December 31, 2016 and 3.00 to 1.00 thereafter. A default of the financial ratio covenants shall only become an event of default under the New Term Loan if the lenders providing the New Revolving Credit Facility take certain affirmative actions after the occurrence of a default of such financial ratio covenants.

        The credit agreement governing the New Credit Facility contains a number of customary events of default, including, among others, for the non-payment of principal, interest or other amounts, the inaccuracy of certain representations and warranties, the failure to perform or observe certain covenants, a cross default to other indebtedness including the Senior Notes, certain events of bankruptcy or insolvency; certain ERISA events, the invalidity of certain loan documents, certain changes of control and the loss of certain classes of licenses to conduct gaming. If any event of default occurs, the lenders under the New Credit Facility would be entitled to take various actions, including accelerating amounts due thereunder and taking all actions permitted to be taken by a secured creditor. As of September 30, 2015, the Company was in compliance with the covenants under the New Credit Facility.

Resorts Senior Secured Notes

        On June 1, 2011, Resorts completed the issuance of the 8.625% Senior Secured Notes due 2019 (the "Resorts Senior Secured Notes"). Interest on the Resorts Senior Secured Notes was payable

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 7. Long-Term Debt (Continued)

semiannually each June 15 and December 15 to holders of record on the preceding June 1 or December 1, respectively.

        Pursuant to the refinancing transactions, the Company purchased or discharged all of the outstanding Resorts Senior Secured Notes in July 2015.

MTR Gaming Second Lien Notes

        On August 1, 2011, MTR Gaming completed the offering of the 11.5% Senior Secured Second Lien Notes due August 1, 2019 (the "MTR Second Lien Notes") at an issue price equal to 97% of the aggregate principal amount. The MTR Second Lien Notes were scheduled to mature on August 1, 2019, with interest payable semi-annually in arrears on February 1 and August 1 of each year.

        Pursuant to the refinancing transactions, the Company purchased or discharged all of the outstanding MTR Second Lien Notes in July 2015.

Note 8. Fair Value of Financial Instruments

        Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Accordingly, fair value is a market based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, there is a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair values as follows:

Level 1:

  Quoted market prices in active markets for identical assets or liabilities.

Level 2:

 

Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3:

 

Unobservable inputs that are not corroborated by market data.

        The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practical to estimate fair value:

        Cash and Cash Equivalents:    Cash equivalents include investments in money market funds. Investments in this category can be redeemed immediately at the current net asset value per share. A money market fund is a mutual fund whose investments are primarily in short-term debt securities designed to maximize current income with liquidity and capital preservation, usually maintaining per share net asset value at a constant amount, such as one dollar. The carrying amounts approximate the fair value because of the short maturity of those instruments.

        Restricted Cash:    Restricted cash includes unredeemed winning tickets from the Company's racing operations, funds related to horsemen's fines and certain simulcasting funds that are restricted to payments for improving horsemen's facilities and racing purses at Scioto Downs, cash deposits that serve as collateral for letters of credit surety bonds and short-term certificates of deposit that serve as collateral for certain bonding requirements. Restricted cash is classified as Level 1 as its carrying value approximates market prices.

        Advance to Silver Legacy Joint Venture:    The $7.5 million note receivable due to ELLC from the Silver Legacy Joint Venture (see Note 3) is classified as Level 2 based upon market-based inputs.

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8. Fair Value of Financial Instruments (Continued)

        Long-term Debt:    The Senior Notes are classified as Level 2 based upon market inputs. The New Term Loan under the credit facility is classified as Level 2 as it is tied to market rates of interest and its carrying value approximates market value. The fair value of the Senior Notes was based on quoted market prices at September 30, 2015. The fair value of the Resorts Senior Secured Notes was calculated based on management's estimates of the borrowing rates available at December 31, 2014 for debt with similar terms and maturities. The fair value of the MTR Second Lien Notes was based on quoted market prices at December 31, 2014.

        Acquisition-Related Contingent Considerations:    Contingent consideration related to the July 2003 acquisition of Scioto Downs represents the estimate of amounts to be paid to former stockholders of Scioto Downs under certain earn-out provisions. The Company considers the acquisition related contingency's fair value measurement, which includes forecast assumptions, to be Level 3 within the fair value hierarchy.

        The estimated fair values of the Company's financial instruments are as follows (amounts in thousands):

 
  September 30, 2015   December 31, 2014  
 
  Carrying
Amount
  Fair
Value
  Carrying
Amount
  Fair
Value
 
 
  (unaudited)
   
   
 

Financial assets:

                         

Cash and cash equivalents

  $ 48,751   $ 48,751   $ 87,604   $ 87,604  

Restricted and escrow cash

    57,100     57,100     8,234     8,234  

Advance to Silver Legacy Joint Venture

        5,622         4,911  

Financial liabilities:

                         

Senior Notes

    365,872     367,500          

New Term Loan

    409,229     424,997          

New Revolving Credit Facility

    15,447     18,000          

Resorts Senior Secured Notes

            164,229     174,720  

MTR Second Lien Notes

            610,827     606,919  

Acquisition-related contingent considerations

    529     529     524     524  

        The following table represents the change in acquisition-related contingent consideration liabilities during the period December 31, 2014 to September 30, 2015:

Balance as of December 31, 2014

  $ 524  

Amortization of present value discount(1)

    52  

Fair value adjustment for change in consideration expected to be paid(2)

    38  

Settlements

    (85 )

Balance as of September 30, 2015

  $ 529  

(1)
Changes in present value are included as a component of interest expense in the consolidated statements of operations.

(2)
Fair value adjustments for changes in earn-out estimates are included in general and administrative expense in the consolidated statements of operations.

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9. Earnings per Share

        The following table illustrates the reconciliation of the numerators and denominators of the basic and diluted net income per share computations during the three and nine months ended September 30, 2015 and 2014 (dollars in thousands, except per share amounts):

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2015   2014   2015   2014  
 
  (unaudited)
  (unaudited)
 

Net income (loss) available to common stockholders

  $ 5,399   $ (4,064 ) $ 4,030   $ (3,488 )

Weighted average shares outstanding:

                         

Basic

    46,516,614     26,075,022     46,509,369     24,242,791  

Diluted

    46,763,589     26,075,022     46,620,959     24,242,791  

Net income (loss) per common share:

                         

Basic

  $ 0.12   $ (0.16 ) $ 0.09   $ (0.14 )

Diluted

  $ 0.12   $ (0.16 ) $ 0.09   $ (0.14 )

        As the accounting acquirer in the Merger and in accordance with the applicable accounting guidance in ASC 805, for purposes of computing comparative earnings per share, the Company has presented the historical weighted average number of common shares outstanding multiplied by the exchange ratio established in the merger agreement (see Note 2) for the three and nine months ended September 30, 2014. At the Merger Date, there were no dilutive securities outstanding.

Equity Offering

        On July 7, 2015, the Company filed a registration statement relating to an underwritten offering of up to $80 million common stock ("Common Stock Offering"). The Company intends to sell shares of common stock to generate aggregate net proceeds of approximately $60 million, prior to the exercise of the underwriters' option to purchase additional shares. The number of shares sold in the offering, if any, will be subject to market conditions.

        If the equity offering is completed, the Company intends to apply the proceeds from the Common Stock Offering to pay a portion of the purchase price for the purchase of all of the assets of Circus Circus Reno and the Silver Legacy Joint Venture currently owned by a subsidiary of MGM Resorts International, including repayment of amounts outstanding under the Silver Legacy Joint Venture credit facility, and pay fees and costs associated with such transactions. If the equity offering is not completed in advance of the completion of the purchase, the Company intends to utilize the New Revolving Credit Facility to fund a portion of the Circus Reno/Silver Legacy Purchase.

Note 10. Commitments and Contingencies

Litigation

        The Company is a party to various lawsuits, which have arisen in the normal course of business. Estimated losses are accrued for these lawsuits and claims when the loss is probable and can be estimated. The current liability for the estimated losses associated with those lawsuits is not material to

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10. Commitments and Contingencies (Continued)

the consolidated financial condition and those estimated losses are not expected to have a material impact on the results of operations.

        On April 17, 2010, Presque Isle Downs, Inc. initiated legal action in the Court of Common Pleas of Erie County, Pennsylvania, against defendants Dwayne Cooper Enterprises, Inc. ("DCE"), Turner Construction Company ("Turner"), and Rectenwald Buehler Architects, Inc. f/k/a Weborg Rectenwald Buehler Architects, Inc. ("RB") to recover damages arising out of failures of the surveillance system installed during the original construction of the casino facilities at Presque Isle Downs. DCE supplied and installed the surveillance system, RB acted as the project architect, and Turner served as the construction manager on the project. Shortly after Presque Isle Downs opened on February 28, 2007, it discovered that certain components of the surveillance system were defective, malfunctioning or missing. After efforts to remediate the deficiencies in the system were unsuccessful, it became necessary to replace certain components of the surveillance system at a cost of $1.9 million, and to write-off approximately $1.5 million related to the net book value of the equipment that was replaced. On April 5, 2011, Presque Isle Downs obtained a default judgment against DCE in the amount of $2.7 million. Efforts to enforce the judgment against DCE are ongoing but the assets of DCE appear to be modest and materially insufficient to pay the judgment. Any proceeds that may be received will be recorded as the amounts are realized. Defendant RB joined five additional vendors/subcontractors as additional defendants in the case. Each of the defendants and all but one of the additional defendants filed motions or objections requesting that the Court dismiss the claims against it. After these motions and objections were denied and the parties engaged in limited discovery, the parties agreed to submit the case to mediation. The mediation occurred on February 10, 2015, and resulted in an agreement under which the sum of $0.7 million would be paid to Presque Isle Downs, Inc. in exchange for a general release of the defendants (except DCE) and the additional defendants. A settlement agreement and release have been entered into by all parties. The case was dismissed August 4, 2015.

        On October 21, 2011, the Ohio Roundtable filed a complaint in the Court of Common Pleas in Franklin County, Ohio against a number of defendants, including the Governor, the Ohio Lottery Commission and the Ohio Casino Control Commission. The complaint alleges a variety of substantive and procedural defects relative to the approval and implementation of video lottery terminals as well as several counts dealing with the taxation of standalone casinos. As interveners, the Company, along with four of the other racinos in Ohio, filed motions for judgment on the pleadings to supplement the position of the Racing Commission. In May 2012, the Court of Common Pleas dismissed the case; however, the plaintiffs filed an appeal and oral arguments were held on January 17, 2013 in the 10th District Court of Appeals. In March 2013, the Court of Appeals upheld the ruling. The decision of the Appeals Court was appealed to the Ohio Supreme Court by the plaintiffs on April 30, 2013 and the Ohio Supreme Court elected to accept the appeal. The Ohio Supreme Court temporarily stayed the appeal until it first ruled on a matter with similar procedural issues. A decision was issued on that case on June 10, 2014. Accordingly, along with the State Appellees, a motion to dismiss as improvidently granted was filed which was partially granted. The remaining propositions of law have been briefed by both parties and oral arguments were held on June 23, 2015.

Environmental Remediation

        In October 2004, the Company acquired 229 acres of real property, known as the International Paper site, as an alternative site to build Presque Isle Downs. In connection with the acquisition of the

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10. Commitments and Contingencies (Continued)

International Paper site, the Company entered into a consent order and decree (the "Consent Order") with the PaDEP and International Paper insulating us from liability for certain pre-existing contamination, subject to compliance with the Consent Order, which included a proposed environmental remediation plan for the site, which was tied specifically to the use of the property as a racetrack. The proposed environmental remediation plan in the Consent Order was based upon a "baseline environmental report" and management estimated that such remediation would be subsumed within the cost of developing the property as a racetrack. The racetrack was never developed at this site. In October 2005, the Company sold approximately 205 acres to GEIDC who assumed primary responsibility for the remediation obligations under the Consent Order relating to the property they acquired. However, the Company was advised by the PaDEP that it was not released from its liability and responsibility under the Consent Order. The Company also purchased an Environmental Risk Insurance Policy in the amount of $10.0 million with respect to the property, which was renewed in October 2015 for a period of one year. The Company believes that the insurance coverage is in excess of any exposure that we may have in this matter.

Regulatory Gaming Assessments

        The Pennsylvania Gaming Control Board (the "PGCB"), the Pennsylvania Department of Revenue and the Pennsylvania State Police (collectively "the Borrowers"), were required to fund the costs they incurred in connection with the initial development of the infrastructure to support gaming operations in Pennsylvania as well as the initial ongoing costs of the Borrowers. The initial funding of these costs was provided from a loan from the Pennsylvania General Fund in the amount of $36.1 million, and further funding was provided from additional loans from the Pennsylvania Property Tax Reserve Fund in the aggregate amount of $63.8 million.

        The Pennsylvania Department of Revenue will assess all licensees, including Presque Isle Downs, their proportionate share of amounts represented by the borrowings, which are in the aggregate amount of $99.9 million, once the designated number of Pennsylvania's slot machine licensees is operational. On July 11, 2011, the PGCB issued an administrative order which established that payments associated with the $63.8 million that was borrowed from the Property Tax Reserve Fund would commence on January 1, 2012. The repayment allocation between all current licensees is based upon equal weighting of (1) cumulative gross slot revenue since inception in relation to the combined cumulative gross slot revenue for all licensees and (2) single year gross slot revenue (during the state's fiscal year ending September 30) in relation to the combined single year gross slot revenue for all licensees; and amounts paid each year will be adjusted annually based upon changes in the licensee's proportionate share of gross slot revenue. MTR Gaming has estimated that its total proportionate share of the aggregate $63.8 million to be assessed to the gaming facilities will be approximately $4.1 million and will be paid quarterly over a ten-year period, which began effective January 1, 2012. For the $36.1 million that was borrowed from the General Fund, payment is scheduled to begin after all fourteen licensees are operational. Although MTR Gaming cannot determine when payment will begin, it has considered a similar repayment model for the General Fund borrowings and estimated that its total proportionate share of the aggregate $36.1 million to all fourteen gaming facilities will approximate $2.1 million, which has been accrued in the accompanying consolidated balance sheets at September 30, 2015 and December 31, 2014.

        The recorded estimate is subject to revision based upon future changes in the revenue assumptions utilized to develop the estimate. The estimated total obligation at September 30, 2015 and

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10. Commitments and Contingencies (Continued)

December 31, 2014 was $4.5 million and $5.0 million, respectively, and is accrued in the accompanying consolidated balance sheets. As of and during the nine months ended September 30, 2015, the total estimated liability decreased as a result of changes in the forecasted assumptions utilized in the model by $0.5 million and was recognized in gaming operating expenses. The Company paid $0.3 million during the nine months ended September 30, 2015.

Note 11. Related Parties

        As of September 30, 2015, the Company's receivables and payables to related parties amounted to $0.4 million and $0.2 million, respectively. As of December 31, 2014, the Company's receivables and payables to related parties amounted to $0.4 million and $0.2 million, respectively. These amounts represent amounts related to shared services and other transactions in the ordinary course of business between Resorts and Silver Legacy.

Note 12. Segment Information

        The following table sets forth, for the period indicated, certain operating data for the Company's reportable segments. Management views each of its casinos as an operating segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, and their management and reporting structure. The Company's principal operating activities occur in three geographic regions: Reno, Shreveport and the eastern states. The Company has aggregated its operating segments into three reportable segments: Eldorado Reno, Eldorado Shreveport and MTR Gaming along with its corporate offices. Pending the consummation of the Circus Reno/Silver Legacy Purchase, which is expected to occur during the fourth

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 12. Segment Information (Continued)

quarter of 2015, the Company intends to reassess its segment reporting. Based on this reassessment, the Company's segment reporting may change for the year ended December 31, 2015.

 
  Three Months
Ended September 30,
  Nine Months
Ended September 30,
 
 
  2015   2014   2015   2014  
 
  (in thousands,
unaudited)

  (in thousands,
unaudited)

 

Revenues and expenses

                         

Eldorado Reno

                         

Net operating revenues(a)

  $ 29,002   $ 28,759   $ 79,961   $ 81,545  

Expenses, excluding depreciation

    (23,236 )   (25,321 )   (66,756 )   (72,585 )

Loss on sale or disposal of property

    (16 )       (11 )    

Acquisition charges

        (3,845 )       (6,298 )

Equity in income of unconsolidated affiliates

    2,548     1,238     3,136     3,019  

Depreciation

    (1,959 )   (1,941 )   (5,833 )   (5,933 )

Operating income (loss)—Eldorado Reno

  $ 6,339   $ (1,110 ) $ 10,497   $ (252 )

Eldorado Shreveport

                         

Net operating revenues

  $ 34,651   $ 34,629   $ 103,919   $ 102,122  

Expenses, excluding depreciation and amortization(a)

    (27,012 )   (28,647 )   (81,217 )   (84,389 )

Gain (loss) on sale or disposal of property

    64     (3 )   63     (3 )

Depreciation and amortization

    (1,902 )   (2,053 )   (5,709 )   (6,335 )

Operating income—Eldorado Shreveport

  $ 5,801   $ 3,926   $ 17,056   $ 11,395  

MTR Gaming

                         

Net operating revenues

  $ 119,887   $ 16,311   $ 349,744   $ 16,311  

Expenses, excluding depreciation and amortization

    (94,476 )   (14,442 )   (276,923 )   (14,442 )

Loss on sale or disposal of property

    (54 )       (54 )    

Acquisition charges

        (618 )   (84 )   (618 )

Depreciation and amortization

    (9,989 )   (1,289 )   (30,647 )   (1,289 )

Operating income (loss)—MTR Gaming

  $ 15,368   $ (38 ) $ 42,036   $ (38 )

Eldorado Corporate

                         

Expenses, excluding depreciation(a)

  $ (2,932 ) $   $ (9,456 ) $  

Acquisition charges

    (380 )       (633 )    

Depreciation

    (104 )       (265 )    

Operating loss—Eldorado Corporate

  $ (3,416 ) $   $ (10,354 ) $  

Total Reportable Segments

                         

Net operating revenues(a)

  $ 183,540   $ 79,699   $ 533,624   $ 199,978  

Expenses, excluding depreciation and amortization(a)

    (147,656 )   (68,410 )   (434,352 )   (171,416 )

Loss on sale or disposal of property

    (6 )   (3 )   (2 )   (3 )

Acquisition charges

    (380 )   (4,463 )   (717 )   (6,916 )

Equity in income of unconsolidated affiliates

    2,548     1,238     3,136     3,019  

Depreciation and amortization

    (13,954 )   (5,283 )   (42,454 )   (13,557 )

Operating income—Total Reportable Segments

  $ 24,092   $ 2,778   $ 59,235   $ 11,105  

Reconciliations to Consolidated Net Income(Loss)

                         

Operating Income—Total Reportable Segments

  $ 24,092   $ 2,778   $ 59,235   $ 11,105  

Unallocated income and expenses:

                         

Interest expense, net

    (14,482 )   (5,647 )   (48,946 )   (13,398 )

Loss on early retirement of debt

    (1,790 )       (1,790 )    

Provision for income taxes

    (2,421 )   (1,195 )   (4,469 )   (1,195 )

Net income (loss)

  $ 5,399   $ (4,064 ) $ 4,030   $ (3,488 )

(a)
Includes intercompany management fee revenues earned by Eldorado Reno and expensed by Eldorado Shreveport amounting to $0.8 million and $2.3 million, respectively, for the three and nine months ended September 30, 2014.

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 12. Segment Information (Continued)

 
  Nine Months Ended
September 30,
 
 
  2015   2014  
 
  (in thousands,
unaudited)

 

Capital Expenditures:

             

Eldorado Reno

  $ 3,212   $ 2,404  

Eldorado Shreveport

    2,491     1,824  

MTR Gaming

    18,216     337  

Eldorado Corporate

    495      

Total

  $ 24,414   $ 4,565  

 

 
  As of
September 30,
2015
  As of
December 31,
2014
 
 
  (in thousands)
 
 
  (unaudited)
   
 

Total Assets:

             

Eldorado Reno

  $ 116,069   $ 232,559  

Eldorado Shreveport

    134,556     143,928  

Eldorado Corporate

    796,107      

MTR Gaming

    874,010     921,726  

Eliminating and reclassification entries(a)

    (751,797 )   (126,654 )

Total

  $ 1,168,945   $ 1,171,559  

        Summary of eliminating and reclassification entries for the periods indicated:

Proceeds from Resorts Senior Secured Notes loaned to Eldorado Shreveport

  $   $ 116,308  

Accrued interest on the above intercompany loan

        418  

Intercompany receivables/payables

    741,560     130  

Reclassification of noncurrent deferred tax assets

    947      

Net investment in and advances to MTR Gaming

    5,000     5,000  

Net investment in and advances to Eldorado Shreveport

    4,290     4,798  

Total eliminating and reclassification entries

  $ 751,797   $ 126,654  

Note 13. Pending Acquisitions

        On July 7, 2015, certain of the Company's subsidiaries, Circus Circus Casinos, Inc. and Galleon, Inc., subsidiaries of MGM Resorts International, entered into a purchase and sale agreement (the "Purchase Agreement") with respect to the acquisition of (i) all of the assets and properties of Circus Circus Reno and (ii) the 50% membership interest in the Silver Legacy Joint Venture owned by Galleon, Inc. (collectively, the "Circus Reno/Silver Legacy Purchase"). ERI has unconditionally guaranteed the purchaser's obligations under the Purchase Agreement. ERI currently has an indirect interest in 48.1% of the interests of the Silver Legacy Joint Venture. In connection with the

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ELDORADO RESORTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13. Pending Acquisitions (Continued)

consummation of the Circus Reno/Silver Legacy Purchase, ERI expects to acquire the 1.9% indirect interest in the Silver Legacy Joint Venture held by ELLC. Following the consummation of the foregoing transactions, the Silver Legacy Joint Venture will be a wholly-owned indirect subsidiary of ERI.

        The proposed purchase price for the Circus Reno/Silver Legacy Purchase is $72.5 million, subject to a customary working capital adjustment, and the assumption of amounts outstanding under the Silver Legacy Joint Venture credit facility, of which $80.5 million was outstanding at September 30, 2015. In conjunction with the execution of the Purchase Agreement, ERI deposited $3.0 million in escrow, which it will surrender in the event the proposed acquisitions fail to close for reasons other than a breach by Circus Circus Casinos, Inc. or Galleon, Inc. The balance of the purchase price will be payable in cash at the closing of the Circus Reno/Silver Legacy Purchase. The Company expects to apply a portion of the proceeds of the sale of the Senior Notes, proceeds from the sale of common stock or borrowings under the New Revolving Credit Facility and cash on hand to pay the purchase price for the Circus Reno/Silver Legacy Purchase. The consummation of the transactions contemplated by the Purchase Agreement is subject to the satisfaction of certain conditions, including the approval of various gaming authorities. The Circus Reno/Silver Legacy transaction is expected to be consummated in November 2015, but there can be no assurance that the proposed acquisition will be consummated or as to the date by which the proposed acquisition will be consummated. The Company incurred $0.6 million in costs associated with the pending acquisitions during the nine months ended September 30, 2015.

Note 14. Employee Benefit Plans

        In August 2015, the Company's Compensation Committee and Board of Directors approved the termination of the existing Resorts and MTR Gaming 401(k) plans and the establishment of a new consolidated ERI 401(k) plan, both to be effective in January 2016.

Note 15. Subsequent Events

        In October 2015, the Company announced that it established Columbus Southeast Hotel Group LLC, a joint venture with Vista Host, Inc. to develop a new 118-room Hampton Inn & Suites hotel that will be attached to Eldorado's Scioto Downs Racino in Columbus, OH. Construction of the new hotel is expected to begin in October with a targeted completion date in late 2016.

        Pursuant to the terms of the joint venture agreement, the Company is contributing $1.0 million of cash and 2.4 acres of land immediately adjacent the Scioto Downs Racino. Columbus Southeast Hotel Group LLC will be responsible for the construction of the $15.0 million hotel and Vista Host, Inc. will operate it upon its completion. The Company is evaluating the accounting treatment associated with the new joint venture and the impact it will have on its financial statements.

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

General

        Eldorado Resorts, Inc. ("ERI" or the "Company"), a Nevada corporation, was formed in September 2013 to be the parent company following the merger of wholly owned subsidiaries of the Company into Eldorado HoldCo LLC ("HoldCo"), a Nevada limited liability company formed in 2009 that is the parent company of Eldorado Resorts LLC ("Resorts"), and MTR Gaming Group, Inc. ("MTR Gaming"), a Delaware corporation incorporated in 1988 (the "Merger"). Effective upon the consummation of the Merger on September 19, 2014 (the "Merger Date"), MTR Gaming and HoldCo each became a wholly owned subsidiary of ERI and, as a result of such transactions, Resorts became an indirect wholly owned subsidiary of ERI.

        MTR Gaming is a hospitality and gaming company with racetrack, gaming and hotel properties in West Virginia, Pennsylvania and Ohio. MTR Gaming, through its wholly-owned subsidiaries, owns and operates Mountaineer Casino, Racetrack & Resort in Chester, West Virginia ("Mountaineer"), Presque Isle Downs & Casino in Erie, Pennsylvania ("Presque Isle Downs") and Scioto Downs in Columbus, Ohio. Scioto Downs, through its subsidiary RacelineBet, Inc., also operates Racelinebet.com, a national account wagering service that offers online and telephone wagering on horse races as a marketing affiliate of TwinSpires.com, an affiliate of Churchill Downs, Inc.

        Resorts owns and operates Eldorado Resort Casino Shreveport, a hotel and riverboat gaming complex that includes a 403-room, all suite, art deco-style hotel and a tri-level riverboat dockside casino situated on the Red River in Shreveport, Louisiana ("Eldorado Shreveport") and the Eldorado Hotel and Casino, a premier hotel, casino and entertainment facility in Reno, Nevada ("Eldorado Reno"). Resorts owns the Eldorado Shreveport indirectly through two wholly owned subsidiaries which own 100.0% of the partnership interests in the Eldorado Shreveport Joint Venture, a Louisiana general partnership ("Louisiana Partnership").

        Resorts also owns a 48.1% interest in the Circus and Eldorado Joint Venture, LLC (the "Silver Legacy Joint Venture") which owns the Silver Legacy Resort Casino (the "Silver Legacy"), a major, themed hotel/casino connected via a skywalk to the Eldorado Reno. On July 7, 2015, certain of our subsidiaries, Circus Circus Casinos, Inc. and Galleon, Inc., subsidiaries of MGM Resorts International, entered into a purchase and sale agreement (the "Purchase Agreement") with respect to the acquisition of (i) all of the assets and properties of Circus Circus Reno and (ii) the other 50% membership interest in the Silver Legacy Joint Venture owned by Galleon, Inc. (collectively, the "Circus Reno/Silver Legacy Purchase"). ERI has unconditionally guaranteed the purchasers' obligations under the Purchase Agreement. ERI currently has an indirect interest in 48.1% of the interests of the Silver Legacy Joint Venture. In connection with the consummation of the Circus Reno/Silver Legacy Purchase, ERI expects to acquire the 1.9% indirect interest in the Silver Legacy Joint Venture held by ELLC. Following the consummation of the foregoing transactions, the Silver Legacy Joint Venture will be a wholly-owned indirect subsidiary of ERI.

        The proposed purchase price is $72.5 million, subject to a customary working capital adjustment, and the assumption of amounts outstanding under the Silver Legacy Joint Venture credit facility, of which approximately $80.5 million was outstanding at September 30, 2015. ERI deposited $3.0 million in escrow, which it will surrender in the event the proposed acquisitions fail to close for reasons other than a breach by Circus Circus Casinos, Inc. or Galleon, Inc. The balance of the purchase price will be payable in cash at the closing of the Circus Reno/Silver Legacy Purchase. The Company expects to apply a portion of the proceeds of the sale of its 7% Senior Notes due 2023, proceeds from the sale of common stock or borrowings under the Company's revolving credit facility and cash on hand to pay the purchase price for the Circus Reno/Silver Legacy Purchase. The consummation of the transactions contemplated by the Purchase Agreement is subject to the satisfaction of certain conditions, including

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the approval of various gaming authorities. The Circus Reno/Silver Legacy transaction is expected to be consummated in November 2015, but there can be no assurance that the proposed acquisition will be consummated or as to the date by which the proposed acquisition will be consummated.

        Resorts also previously owned a 21.3% interest in Tamarack Junction, a small casino in south Reno. On September 1, 2014, and as a condition to closing the Merger, Resorts distributed to HoldCo, and HoldCo subsequently distributed to its members on a pro rata basis, all of Resorts' interest in Tamarack. The distribution resulted in no gain or loss being recognized because the distribution was in the amount of $5.5 million, which was the book value of Tamarack.

        ERI, HoldCo and MTR Gaming are collectively referred to as "we," "us," "our" or the "Company." The Merger closed on the "Merger Date" and has been accounted for as a reverse acquisition of MTR Gaming by HoldCo under accounting principles generally accepted in the United States ("US GAAP"). As a result, HoldCo is considered the acquirer of MTR Gaming for accounting purposes. The financial information included in this Item 2 for periods prior to the Merger Date are those of HoldCo and its subsidiaries. The presentation of information herein for periods prior to the Merger Date and after the Merger Date are not fully comparable because the results of operations for MTR Gaming are not included for periods prior to the Merger Date. Summary financial results of MTR Gaming for the three and nine months ended September 30, 2014 are included in MTR Gaming's Quarterly Report on Form 10-Q as filed with the Securities and Exchange Commission ("SEC").

Significant Factors Impacting Operating Trends

Key Performance Metrics

        Our operating results are highly dependent on the volume of customers visiting and staying at our properties. Key performance metrics include volume indicators such as table games drop and slot handle, which refer to amounts wagered by our customers. The amount of volume we retain, which is not fully controllable by us, is recognized as casino revenues and is referred to as our win or hold. In addition, hotel occupancy and price per room designated by average daily rate ("ADR") are key indicators for our hotel business. Our calculation of ADR consists of the average price of occupied rooms per day including the impact of complimentary rooms. Complimentary room rates are determined based on an analysis of retail or cash rates for each customer segment and each type of room product to estimate complimentary rates which are consistent with retail rates. Complimentary rates are reviewed at least annually and on an interim basis if there are significant changes in market conditions. Complimentary rooms are treated as occupied rooms in our calculation of hotel occupancy.

Economic Impact

        The economic downturn and the uneven recovery from the downturn continue to adversely influence consumers' confidence, discretionary spending levels and travel patterns. High unemployment and the record number of home foreclosures experienced in the economic downturn, increased competition and volatility of the economy have had, and continue to have, a significant negative impact on the gaming and tourism industries, and, as a result, our operating performance over the past several years. In response to the impact of the economic downturn, increased competition and other market factors on our business, our management has implemented cost savings measures and will continue to review our operations to look for opportunities to further reduce expenses and maximize cash flows. While there has been some improvement in the economy, we believe the impact of the economic downturn and the continuing uneven recovery may continue to negatively affect our operating results for some period of time. We remain uncertain as to the duration and magnitude of the impact of such factors on our operations and the length and sustainability of the recovery from the economic downturn.

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Expansion of Native American Gaming and Regional Gaming

        Our business has been adversely impacted by the expansion of Native American gaming and the expansion of gaming in our markets, including Ohio. Future growth of Native American and other gaming establishments, including the addition of hotel rooms and other amenities, would place additional competitive pressure on our operations. While we cannot predict the extent of any future impact, it could be significant.

        Eldorado Reno.    A significant portion of our revenues and operating income are generated from patrons who are residents of northern California, and as such, our operations have been adversely impacted by the growth in Native American gaming in northern California.

        Many existing Native American gaming facilities in northern California are modest compared to Eldorado Reno. However, a number of Native American tribes have established large-scale gaming facilities in California and some Native American tribes have announced that they are in the process of expanding, developing, or are considering establishing, large-scale hotel and gaming facilities in northern California. As northern California Native American gaming operations have expanded, we believe the increasing competition generated by these gaming operations has had a negative impact, principally on drive-in, day-trip visitor traffic from our main feeder markets in northern California. A 320,000 square foot gaming facility located in Sonoma County, California opened on November 5, 2013.

        Under their current compacts, most Native American tribes in California may operate up to 2,000 slot machines and up to two gaming facilities on any one reservation. However, under action taken by the National Indian Gaming Commission, gaming devices similar in appearance to slot machines, but which are deemed to be technological enhancements to bingo style gaming, are not subject to such limits and may be used by tribes without state permission. The number of slot machines the tribes may be allowed to operate could increase as a result of any new or amended compacts the tribes may enter into with the State of California that receive the requisite approvals. Such increases have occurred with respect to a number of new or amended compacts which have been executed and approved.

        Eldorado Shreveport.    Casino gaming is currently prohibited in several jurisdictions from which the Shreveport/Bossier City market draws customers, primarily Texas. Although casino gaming is currently not permitted in Texas, the Texas legislature has from time to time considered proposals to authorize casino gaming and there can be no assurance that casino gaming will not be approved in Texas in the future, which would have a material adverse effect on our business. Eldorado Shreveport competes with several Native American casinos located in Oklahoma, certain of which are located near our core Texas markets. Because we draw a significant amount of our customers from the Dallas/Fort Worth area, but are located approximately 190 miles from that area, we believe we will continue to face increased competition from gaming operations in Oklahoma, including the WinStar and Choctaw casinos, and would face significant competition that may have a material adverse effect on our business and results of operations if casino gaming is approved in Texas. In June 2013, construction was completed on a 30,000 square foot casino and 400-room hotel in Bossier City across the Red River from Eldorado Shreveport. The facility, which also includes several restaurants and a 1,000-seat entertainment arena, received final approval from the Louisiana Gaming Control Board and opened on June 15, 2013. In December 2014, a new luxury, land-based casino with 1,600 slot machines, 72 gaming tables, a poker room, and a 740-room hotel with a ballroom and spa, opened in Lake Charles, Louisiana approximately 200 miles south of Eldorado Shreveport, but closer to the Houston, Texas market.

        MTR Gaming.    The MTR Gaming properties experience varying competitive pressures, from casinos in western Pennsylvania, western New York, northern West Virginia and eastern Ohio. We believe the expansion of gaming in Ohio, which includes casinos that opened in Cleveland in May 2012 and Columbus in October 2012 and additional casinos in Cincinnati and Toledo, as well as the installation of VLTs at existing horse race tracks near Cleveland, one of which opened in April 2013

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and the other in December 2013 and the relocation of a racetrack to Austintown, Ohio, which opened in September 2014, has had and will continue to have a negative impact on our results of operations at all our properties and such impact may be material. In order to sustain our market share in the increased competitive environment, we continuously reevaluate our advertising strategies and promotional offers to our guests to ensure our reinvestment levels reflect the appropriate level of offerings to sustain our margins.

Major Bowling Tournaments in the Reno Market

        The National Bowling Stadium, located one block from Eldorado Reno, is one of the largest bowling complexes in North America and has been selected to host multi-month tournaments in Reno every year through 2018 except for 2017. It has also been selected to host ten United States Bowling Congress ("USBC") tournaments from 2019 through 2026. During this period, two of the ten USBC Tournaments may be held in the same year. Through a one-time agreement, the National Bowling Stadium hosted the USBC Open Tournament in Reno in 2014; usually an off-year for Reno. Historically, these multi-month bowling tournaments have attracted a significant number of visitors to the Reno market and have benefited business in the downtown area, including Eldorado Reno. The USBC Tournaments returned to Reno in 2014 and brought approximately 62,000 bowlers to the Reno area during the 2014 tournament period which began on February 28th and continued through July 12th. The USBC Tournament attracted approximately 15,600 women bowlers to the Reno market from March to July in 2015.

Other Matters

        On August 26, 2014, the Board of Health of Hancock County, West Virginia adopted and approved the Clean Air Regulation Act of 2014 ("Regulation"), which became effective July 1, 2015. The Regulation, bans smoking in public places in Hancock County including at Mountaineer. To comply with the Regulation upon its effective date, Mountaineer built a 9,800 square foot smoking pavilion with 210 slot machines and six table games which opened on July 1, 2015. Notwithstanding our efforts to mitigate the impact of the smoking ban, the Regulation has had a negative impact on our business and results of operations at Mountaineer and we expect that it will continue to negatively impact our business and results of operations and such impact may be material.

Summary Financial Results

Three Months Ended September 30, 2015 Compared to the Three Months Ended September 30, 2014

        The following table highlights the results of our operations (dollars in thousands):

 
  Three Months Ended
September 30,
   
 
 
  Percent
Change
 
 
  2015   2014  

Net operating revenues

  $ 183,540   $ 78,949     132.5 %

Operating expenses

    161,610     72,943     121.6 %

Equity in income of unconsolidated affiliates

    2,548     1,238     105.8 %

Operating income

    24,092     2,778     767.2 %

Net income (loss)

    5,399     (4,064 )   232.8 %

        Net Operating Revenues.    MTR Gaming contributed $119.9 million of net operating revenues for the three months ended September 30, 2015, consisting primarily of casino revenues. Including MTR Gaming net revenues, net operating revenues increased 132.5% for the three months ended September 30, 2015 compared to the same prior year period. Excluding MTR Gaming net revenues,

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consolidated net operating revenues increased 1.6% for the three months ended September 30, 2015 compared to the same prior year period primarily due to increased net revenues at Eldorado Reno.

        Equity in Income of Unconsolidated Affiliates.    Income from our unconsolidated affiliates, the Silver Legacy Joint Venture and our former unconsolidated affiliate, Tamarack, increased $1.3 million for the three months ended September 30, 2015 compared to the same prior year period. Resorts' interest in Tamarack was disposed of on September 1, 2014.

        Operating Income and Net Income (Loss).    Consolidated operating income and net income (loss) includes operating income and net income of $15.4 million and $18.9 million, respectively, attributable to MTR Gaming for the three months ended September 30, 2015. Excluding operating income attributable to MTR Gaming, consolidated operating income was $8.7 million and net loss was $13.5 million during the three months ended September 30, 2015. Consolidated operating income, excluding operating income attributable to MTR Gaming, included incremental corporate costs offset by decreased acquisition charges, an increase in equity in income of unconsolidated affiliates, lower depreciation and improved operating income at both Eldorado Reno and Eldorado Shreveport. Excluding net income attributable to MTR Gaming, the decrease in net income was primarily due to the same factors impacting operating income along with a $1.8 million loss on the early retirement of debt associated with our refinancing in July 2015 (see "Liquidity and Capital Resources").

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Revenues

        The following table highlights our sources of net operating revenues (dollars in thousands):

 
  Three Months Ended
September 30,
   
 
 
  Percent
Change
 
 
  2015   2014  

Casino:

                   

Eldorado Reno

  $ 17,313   $ 17,142     1.0 %

Eldorado Shreveport

    32,005     31,916     0.3 %

MTR Gaming

    107,039     14,399     643.4 %

Total

    156,357     63,457     146.4 %

Pari-mutuel commissions—MTR Gaming

    3,781     446     747.8 %

Food and beverage:

                   

Eldorado Reno

    9,025     8,435     7.0 %

Eldorado Shreveport

    6,163     6,267     (1.7 )%

MTR Gaming

    8,852     1,270     597.0 %

Total

    24,040     15,972     50.5 %

Hotel:

                   

Eldorado Reno

    5,675     5,180     9.6 %

Eldorado Shreveport

    2,177     2,176     0.0 %

MTR Gaming

    1,341     199     573.9 %

Total

    9,193     7,555     21.7 %

Other:

                   

Eldorado Reno

    1,479     1,478     0.1 %

Eldorado Shreveport

    820     847     (3.2 )%

MTR Gaming

    3,866     773     400.1 %

Total

    6,165     3,098     99.0 %

Promotional allowances:

                   

Eldorado Reno

    (4,490 )   (4,226 )   6.2 %

Eldorado Shreveport

    (6,514 )   (6,577 )   (1.0 )%

MTR Gaming

    (4,992 )   (776 )   543.3 %

Total

    (15,996 )   (11,579 )   38.1 %

        Casino Revenues.    MTR Gaming contributed $107.0 million of casino revenues for the three months ended September 30, 2015 consisting of net win from slot operations, table games and poker. As a result, consolidated casino revenues increased 146.4% for the three months ended September 30, 2015 compared to the same prior year period.

        Consolidated casino revenues, excluding MTR Gaming casino revenues, increased 0.5% for the three months ended September 30, 2015 compared to the same prior year period. Eldorado Shreveport and Eldorado Reno experienced slight increases of 0.3% and 1.0%, respectively, in casino revenues for the three months ended September 30, 2015 compared to the same prior year period. Growth in table games and slot volume at Eldorado Reno for the three months ended September 30, 2015 compared to the same prior year period was offset by lower hold percentages.

        Pari-mutuel Commissions.    MTR Gaming contributed $3.8 million of pari-mutuel commissions for the three months ended September 30, 2015.

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        Food and Beverage Revenues.    MTR Gaming contributed $8.9 million of food and beverage revenues for the three months ended September 30, 2015. As a result, consolidated food and beverage revenues increased 50.5% for the three months ended September 30, 2015 compared to the same prior year period.

        Consolidated food and beverage revenues, excluding MTR Gaming food and beverage revenues, increased 3.3% for the three months ended September 30, 2015 compared to the same prior year period. Food and beverage revenues increased 7.0% at Eldorado Reno mainly due to an increase in the average check as a result of selective price increases. Food and beverage revenues decreased 1.7% at Eldorado Shreveport for the three months ended September 30, 2015 compared to the same prior year period primarily due to decreased beverage revenues.

        Hotel Revenues.    MTR Gaming contributed $1.3 million of hotel revenues for the three months ended September 30, 2015. As a result, consolidated hotel revenues increased 21.7% for the three months ended September 30, 2015 compared to the same prior period.

        Consolidated hotel revenues, excluding MTR Gaming hotel revenues, increased 6.7% for the three months ended September 30, 2015 compared to the same prior year period. Eldorado Reno's ADR and occupancy were $82.27 and 90.1%, respectively, for the three months ended September 30, 2015 compared to $77.84 and 86.7%, respectively, for the three months ended September 30, 2014 resulting in a 9.6% increase in hotel revenues. The increase in ADR was due to strong event and holiday weekends, an increase in the resort fee and efforts to effectively yield hotel room rates. Hotel revenues for the three months ended September 30, 2015 at Eldorado Shreveport remained flat with the same prior year period due to higher occupancy offset by lower room rates. Eldorado Shreveport's ADR declined to $63.31 for the three months ended September 30, 2015 from $64.51 for the same prior year period while occupancy increased to 92.8% for the three months ended September 30, 2015 compared to 91.0% for the same prior year period.

        Other Revenues.    Other revenues are comprised of revenues generated by our retail outlets, entertainment venues and other miscellaneous items. MTR Gaming contributed $3.9 million of other revenues for the three months ended September 30, 2015. As a result, consolidated other revenues increased 99.0% for the three months ended September 30, 2015 compared to the same prior year period.

        Consolidated other revenues, excluding MTR Gaming other revenues, decreased 1.1% for the three months ended September 30, 2015 compared to the same prior year period. Other revenues at Eldorado Reno remained flat during the three months ended September 30, 2015 compared to the same prior year period. Other revenues decreased 3.2% at Eldorado Shreveport during the three months ended September 30, 2015 compared to the same prior year period due to lower retail and spa sales which were partially offset by higher ATM commission revenues.

        Promotional Allowances.    Consolidated promotional allowances, expressed as a percentage of casino revenues, decreased to 10.2% for the three months ended September 30, 2015 compared to 18.2% for the same prior year period, and total consolidated promotional allowances increased 38.1%. MTR Gaming's promotional allowances represented 4.7% of its casino revenues for the three months ended September 30, 2015. Promotional allowances at Eldorado Reno increased 6.2% for the three months ended September 30, 2015 compared to the same prior year period due to an increase casino complimentaries associated with higher casino volume. Promotional allowances decreased 1.0% for the three months ended September 30, 2015 compared to the same prior year period at Eldorado Shreveport despite the slight increase in casino revenues due to a reallocation of promotional spend. Management actively reviews the effectiveness of its promotions and direct mail programs to expand successful promotions while eliminating or reducing less profitable promotions. Promotional activities

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reflect our efforts to maintain ERI's share of the gaming markets in which it operates in an effort to mitigate the impact of increasing competition.

Operating Expenses

        The following table highlights our operating expenses (dollars in thousands):

 
  Three Months Ended
September 30,
   
 
 
  Percent
Change
 
 
  2015   2014  

Casino:

                   

Eldorado Reno

  $ 6,762   $ 7,436     (9.1 )%

Eldorado Shreveport

    17,795     18,501     (3.8 )%

MTR Gaming

    65,841     8,659     660.4 %

Total

    90,398     34,596     161.3 %

Pari-mutuel commissions—MTR Gaming

    3,625     520     597.1 %

Food and beverage:

                   

Eldorado Reno

    5,749     5,991     (4.0 )%

Eldorado Shreveport

    1,365     1,440     (5.2 )%

MTR Gaming

    5,347     1,031     418.6 %

Total

    12,461     8,462     47.3 %

Hotel:

                   

Eldorado Reno

    1,651     1,681     (1.8 )%

Eldorado Shreveport

    302     314     (3.8 )%

MTR Gaming

    387     114     239.5 %

Total

    2,340     2,109     11.0 %

Other:

                   

Eldorado Reno

    1,582     1,465     8.0 %

Eldorado Shreveport

    394     384     2.6 %

MTR Gaming

    2,103     475     342.7 %

Total

    4,079     2,324     75.5 %

Marketing and promotions

    7,816     5,262     48.5 %

General and administrative

    26,937     14,237     89.2 %

Management fee

        150     (100.0 )%

Depreciation and amortization

    13,954     5,283     164.1 %

        Casino Expenses.    MTR Gaming incurred $65.8 million of casino expenses for the three months ended September 30, 2015. As a result, consolidated casino expenses increased 161.3% for the three months ended September 30, 2015 compared to the same prior year period.

        Casino expenses, excluding MTR Gaming casino expenses, decreased 5.3% during the three months ended September 30, 2015 compared to the same prior year period. Casino expenses at Eldorado Reno decreased 9.1% for the three months ended September 30, 2015 compared to the same prior year period primarily reflecting the decrease in departmental variable costs, including payroll and benefits, marketing expenditures and bad debt expense. Casino expenses at Eldorado Shreveport decreased 3.8% during the three months ended September 30, 2015 compared to the same prior year period primarily due to lower departmental payroll, bad debt expense and other variable costs resulting from efforts to control variable costs.

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        Pari-mutuel Expense.    MTR Gaming incurred $3.6 million of pari-mutuel expense for the three months ended September 30, 2015.

        Food and Beverage Expenses.    MTR Gaming incurred $5.3 million of food and beverage expenses for the three months ended September 30, 2015. As a result, consolidated food and beverage expenses increased 47.3% for the three months ended September 30, 2015 compared to the same prior year period.

        Food and beverage expenses, excluding MTR Gaming food and beverage expenses, decreased 4.3% for the three months ended September 30, 2015 compared to the same prior year period. Eldorado Reno's food and beverage expenses decreased 4.0% during the current period due to lower cost of sales combined with lower payroll expenditures resulting in improved departmental profit. Food and beverage expenses decreased 5.2% at Eldorado Shreveport for the three months ended September 30, 2015 compared to the same prior year period. Food cost of sales, as a percentage of associated revenues, declined during the three months ended September 30, 2015 compared to the same prior year period due to successful efforts to control food costs of product. Moreover, revisions to Eldorado Shreveport's employee meal program resulted in improvements in the departmental profit margin.

        Hotel Expenses.    MTR Gaming incurred $0.4 million of hotel expenses for the three months ended September 30, 2015. As a result, consolidated hotel expenses increased 11.0% for the three months ended September 30, 2015 compared to the same prior year period.

        Hotel expenses, excluding MTR Gaming hotel expenses, decreased 2.1% for the three months ended September 30, 2015 compared to the same prior year period. Hotel expenses at Eldorado Reno and Eldorado Shreveport decreased 1.8% and 3.8%, respectively, despite increases in occupancy due to implemented operating efficiencies throughout the hotel departments.

        Other Expenses.    Other expenses are comprised of expenses associated with sales at our retail outlets, entertainment venues and other miscellaneous items. MTR Gaming incurred $2.1 million of other expenses for the three months ended September 30, 2015. As a result, consolidated other expenses increased 75.5% for the three months ended September 30, 2015 compared to the same prior year period.

        Other expenses, excluding MTR Gaming other expenses, increased 6.9% for the three months ended September 30, 2015 compared to the same year period. Other expenses at Eldorado Reno increased 8.0% for the three months ended September 30, 2015 compared to the same prior year period partly due to an increase in credit card commissions associated with higher volume. Other expenses at Eldorado Shreveport increased 2.6% during the three months ended September 30, 2015 compared to the same prior year period.

        Marketing and Promotional Expenses.    MTR Gaming incurred $3.5 million of marketing and promotion expenses for the three months ended September 30, 2015. As a result, consolidated marketing and promotion expenses increased 48.5% for the three months ended September 30, 2015 compared to the same prior year period.

        Excluding MTR Gaming, marketing and promotional expenses decreased 0.4% for the three months ended September 30, 2015 compared to the same prior year period due to reductions in advertising, marketing and promotional expenditures at both Eldorado Reno and Eldorado Shreveport.

        General and Administrative Expenses and Management Fees.    MTR Gaming incurred $13.7 million of general and administrative expenses for the three months ended September 30, 2015. As a result, consolidated general and administrative expenses increased 89.2% during the three months ended September 30, 2015 compared to the same prior year period.

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        Excluding MTR Gaming, general and administrative expenses increased 15.2% during the three months ended September 30, 2015 compared to the same prior year period due to incremental corporate costs associated with the Merger.

        Historically, we paid management fees to Recreational Enterprises, Inc. ("REI") and Hotel Casino Management, Inc. ("HCM"), affiliates of the Company. For the three months ended September 30, 2014, we paid $0.2 million in management fees to REI and HCM.

        Depreciation and Amortization Expense.    MTR Gaming incurred $10.0 million of depreciation and amortization expense for the three months ended September 30, 2015. As a result, depreciation and amortization expense increased 164.1% for three months ended September 30, 2015 compared to the same prior year period.

        At Eldorado Reno and Eldorado Shreveport on a combined basis, depreciation and amortization expense decreased 3.3% for the three months ended September 30, 2015 compared to the same prior year period resulting from more assets becoming fully depreciated.

Acquisition Charges

        We incurred acquisition charges totaling $0.4 million for the three months ended September 30, 2015 in connection with the Circus Reno/Silver Legacy Purchase. We incurred acquisition charges totaling $4.5 million for the three months ended September 30, 2014 in connection with the Merger. The amounts were expensed in accordance with the applicable accounting guidance for business combinations.

Interest Expense, net

        Interest expense increased $8.8 million for the three months ended September 30, 2015 primarily due to the incremental interest incurred by MTR Gaming. This increase was partially offset by reductions in interest expense associated with our refinancing in July 2015 (see "Liquidity and Capital Resources").

Nine Months Ended September 30, 2015 Compared to the Nine Months Ended September 30, 2014

        The following table highlights the results of our operations (dollars in thousands):

 
  Nine Months Ended
September 30,
   
 
 
  Percent
Change
 
 
  2015   2014  

Net operating revenues

  $ 533,624   $ 197,728     169.9 %

Operating expenses

    476,806     182,723     160.9 %

Equity in income of unconsolidated affiliates

    3,136     3,019     3.9 %

Operating income

    59,235     11,105     433.4 %

Net income (loss)

    4,030     (3,488 )   215.5 %

        Net Operating Revenues.    MTR Gaming contributed $349.7 million of net operating revenues for the nine months ended September 30, 2015, consisting primarily of casino revenues. Including MTR Gaming revenues, net operating revenues increased 169.9% for the nine months ended September 30, 2015 compared to the same prior year period. Excluding MTR Gaming net revenues, consolidated net operating revenues increased 1.4% for the nine months ended September 30, 2015 compared to the same prior year period primarily due to improvements in casino revenues at both Eldorado Reno and Eldorado Shreveport.

        Equity in Income of Unconsolidated Affiliates.    Income from our unconsolidated affiliates, the Silver Legacy Joint Venture and our former unconsolidated affiliate, Tamarack, increased $0.1 million

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for the nine months ended September 30, 2015 compared to the same prior year period. Resorts' interest in Tamarack was disposed of on September 1, 2014.

        Operating Income and Net Income (Loss).    Consolidated operating income and net income (loss) includes operating income and net income of $42.0 million and $21.0 million, respectively, attributable to MTR Gaming for the nine months ended September 30, 2015. Excluding operating income attributable to MTR Gaming, consolidated operating income was $17.2 million and net loss was $17.0 million during the nine months ended September 30, 2015. Consolidated operating income, excluding operating income attributable to MTR Gaming, included incremental corporate costs offset by decreased acquisition charges, an increase in equity in income of unconsolidated affiliates, lower depreciation and improved operating income at both Eldorado Reno and Eldorado Shreveport. Excluding net income attributable to MTR Gaming, the decrease in net income was primarily due to the same factors impacting operating income along with a $1.8 million loss on the early retirement of debt associated with our refinancing in July 2015 (See "Liquidity and Capital Resources").

Revenues

        The following table highlights our sources of net operating revenues (dollars in thousands):

 
  Nine Months Ended
September 30,
   
 
 
  Percent
Change
 
 
  2015   2014  

Casino:

                   

Eldorado Reno

  $ 48,431   $ 47,914     1.1 %

Eldorado Shreveport

    95,729     93,967     1.9 %

MTR Gaming

    316,647     14,399     2,099.1 %

Total

    460,807     156,280     194.9 %

Pari-mutuel commissions—MTR Gaming

    8,042     446     1,703.1 %

Food and beverage:

                   

Eldorado Reno

    25,091     25,108     (0.1 )%

Eldorado Shreveport

    19,271     18,970     1.6 %

MTR Gaming

    25,355     1,270     1,896.5 %

Total

    69,717     45,348     53.7 %

Hotel:

                   

Eldorado Reno

    14,334     14,099     1.7 %

Eldorado Shreveport

    6,485     6,449     0.6 %

MTR Gaming

    3,852     199     1,835.7 %

Total

    24,671     20,747     18.9 %

Other:

                   

Eldorado Reno

    4,332     4,240     2.2 %

Eldorado Shreveport

    2,428     2,502     (3.0 )%

MTR Gaming

    10,704     773     1,284.7 %

Total

    17,464     7,515     132.4 %

Promotional allowances:

                   

Eldorado Reno

    (12,227 )   (12,066 )   1.3 %

Eldorado Shreveport

    (19,994 )   (19,766 )   1.2 %

MTR Gaming

    (14,856 )   (776 )   1,814.4 %

Total

    (47,077 )   (32,608 )   44.4 %

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        Casino Revenues.    MTR Gaming contributed $316.6 million of casino revenues for the nine months ended September 30, 2015 consisting of net win from slot operations, table games and poker. As a result, consolidated casino revenues increased 194.9% for the nine months ended September 30, 2015 compared to the same prior year period.

        Consolidated casino revenues, excluding MTR Gaming casino revenues, increased 1.6% for the nine months ended September 30, 2015 compared to the same prior year period due to increased casino revenues at both Eldorado Reno and Eldorado Shreveport resulting from higher casino volume.

        Pari-mutuel Commissions.    MTR Gaming contributed $8.0 million of pari-mutuel commissions for the nine months ended September 30, 2015.

        Food and Beverage Revenues.    MTR Gaming contributed $25.4 million of food and beverage revenues for the nine months ended September 30, 2015. As a result, consolidated food and beverage revenues increased 53.7% for the nine months ended September 30, 2015 compared to the same prior year period.

        Consolidated food and beverage revenues, excluding MTR Gaming food and beverage revenues, increased 0.6% for the nine months ended September 30, 2015 compared to the same prior year period. Food and beverage revenues remained flat at Eldorado Reno during the nine months ended September 30, 2015 compared to the same prior year period mainly due to selective menu price increases offset by declines in restaurant customer counts. Food and beverage revenues increased 1.6% at Eldorado Shreveport for the nine months ended September 30, 2015 compared to the same prior year period due to increased customer counts combined with selective price increases.

        Hotel Revenues.    MTR Gaming contributed $3.9 million of hotel revenues for the nine months ended September 30, 2015. As a result, consolidated hotel revenues increased 18.9% for the nine months ended September 30, 2015 compared to the same prior year period.

        Consolidated hotel revenues, excluding MTR Gaming hotel revenues, increased 1.3% for the nine months ended September 30, 2015 compared to the same prior year period. Hotel revenues at Eldorado Reno increased 1.7% primarily due to an increase in the ADR from $76.10 for the nine months ended September 30, 2015 compared to $73.90 for the nine months ended September 30, 2014 resulting from an increase in the resort fee along with yield rate management. Eldorado's hotel occupancy declined from 84.2% for the nine months ended September 30, 2014 to 83.0% for the nine months ended September 30, 2015 and partially offset the growth in revenues associated with a higher ADR. Eldorado Shreveport's occupancy rate and ADR were 92.7% and $63.59, respectively, for the nine months ended September 30, 2015 compared to 90.3% and $64.93, respectively, for the nine months ended September 30, 2014. As a result, hotel revenues at Eldorado Shreveport increased 0.6% for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014.

        Other Revenues.    Other revenues are comprised of revenues generated by our retail outlets, entertainment venues and other miscellaneous items. MTR Gaming contributed $10.7 million of other revenues for the nine months ended September 30, 2015. As a result, consolidated other revenues increased 132.4% for the nine months ended September 30, 2015 compared to the same prior year period.

        Consolidated other revenues, excluding MTR Gaming other revenues, remained flat for the nine months ended September 30, 2015 compared to the same prior year period. Other revenues at Eldorado Reno increased 2.2% for the nine months ended September 30, 2015 compared to the same prior year period primarily due to increased entertainment revenues in the Eldorado Reno theatre. Other revenues decreased 3.0% at Eldorado Shreveport for the nine months ended September 30, 2015

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compared to the same prior year period due to lower retail sales, which were partially offset by higher ATM commission revenues.

        Promotional Allowances.    Consolidated promotional allowances, expressed as a percentage of casino revenues, decreased to 10.2% for the nine months ended September 30, 2015 compared to 20.9% for the same prior year period, and total consolidated promotional allowances incurred increased 44.4%. MTR Gaming's promotional allowances represented 4.7% of its casino revenues for the nine months ended September 30, 2015. Promotional allowances at Eldorado Reno and Eldorado Shreveport increased 1.3% and 1.2%, respectively, for the nine months ended September 30, 2015 compared to the same prior year period resulting from increases in casino volume. Management actively reviews the effectiveness of its promotions and direct mail programs to expand successful promotions while eliminating or reducing less profitable promotions. Promotional activities reflect our efforts to maintain ERI's share of the gaming markets in which it operates in an effort to mitigate the impact of increasing competition.

Operating Expenses

        The following table highlights our operating expenses (dollars in thousands):

 
  Nine Months Ended
September 30,
   
 
 
  Percent
Change
 
 
  2015   2014  

Casino:

                   

Eldorado Reno

  $ 20,447   $ 21,095     (3.1 )%

Eldorado Shreveport

    53,241     54,123     (1.6 )%

MTR Gaming

    194,594     8,659     2,147.3 %

Total

    268,282     83,877     219.9 %
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