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EX-31.1 - EX-31.1 - Eldorado Resorts, Inc.eri-ex311_6.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

(Mark One)

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

For the quarterly period ended March 31, 2017

OR

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

46‑3657681

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

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

(Address and zip code 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      No  

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      No  

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

 

Large accelerated filer

 

Accelerated filer

Non‑accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.              

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

The number of shares of the Registrant’s Common Stock, $0.00001 par value per share, outstanding as of May 5, 2017 was 75,673,852.

 

 

 

 

 


 

ELDORADO RESORTS, INC.

QUARTERLY REPORT FOR THE THREE MONTHS ENDED

MARCH 31, 2017

TABLE OF CONTENTS

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

Item 1.

FINANCIAL STATEMENTS

 

 

 

Consolidated Balance Sheets at March 31, 2017 (unaudited) and December 31, 2016

 

2

 

Consolidated Income Statement for the Three Months Ended March 31, 2017 and 2016 (unaudited)

 

3

 

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016 (unaudited)

 

4

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016 (unaudited)

 

5

 

Condensed Notes to Unaudited Consolidated Financial Statements

 

6

Item 2.

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

 

23

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

37

Item 4.

CONTROLS AND PROCEDURES

 

37

PART II. OTHER INFORMATION

 

 

Item 1.

LEGAL PROCEEDINGS

 

38

Item 1A.

RISK FACTORS

 

38

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

38

Item 3.

DEFAULTS UPON SENIOR SECURITIES

 

38

Item 4.

MINE SAFETY DISCLOSURES

 

38

Item 5.

OTHER INFORMATION

 

38

Item 6.

EXHIBITS

 

38

SIGNATURES

 

39

 

1


 

PART I-FINANCIAL INFORMATION

Item 1.  Financial Statements.

ELDORADO RESORTS, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

 

 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(unaudited)

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

44,574

 

 

$

 

61,029

 

Restricted cash

 

 

 

2,062

 

 

 

 

2,414

 

Accounts receivable, net

 

 

 

8,829

 

 

 

 

14,694

 

Inventories

 

 

 

11,306

 

 

 

 

11,055

 

Prepaid income taxes

 

 

 

 

 

 

 

69

 

Prepaid expenses and other

 

 

 

13,915

 

 

 

 

12,492

 

Total current assets

 

 

 

80,686

 

 

 

 

101,753

 

ESCROW CASH

 

 

 

376,750

 

 

 

 

 

INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

 

 

 

1,064

 

 

 

 

1,286

 

PROPERTY AND EQUIPMENT, NET

 

 

 

605,734

 

 

 

 

612,342

 

GAMING LICENSES AND OTHER INTANGIBLES, NET

 

 

 

487,020

 

 

 

 

487,498

 

GOODWILL

 

 

 

66,826

 

 

 

 

66,826

 

NON-OPERATING REAL PROPERTY

 

 

 

14,219

 

 

 

 

14,219

 

OTHER ASSETS, NET

 

 

 

13,504

 

 

 

 

10,120

 

Total assets

 

$

 

1,645,803

 

 

$

 

1,294,044

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

 

4,552

 

 

$

 

4,545

 

Accounts payable

 

 

 

16,369

 

 

 

 

21,576

 

Due to affiliates

 

 

 

235

 

 

 

 

259

 

Accrued property, gaming and other taxes

 

 

 

12,151

 

 

 

 

18,790

 

Accrued payroll and related

 

 

 

12,179

 

 

 

 

14,588

 

Accrued interest

 

 

 

4,628

 

 

 

 

14,634

 

Income taxes payable

 

 

 

67

 

 

 

 

 

Accrued other liabilities

 

 

 

35,514

 

 

 

 

27,648

 

Total current liabilities

 

 

 

85,695

 

 

 

 

102,040

 

LONG-TERM DEBT, LESS CURRENT PORTION

 

 

 

1,160,814

 

 

 

 

795,881

 

DEFERRED INCOME TAXES

 

 

 

90,730

 

 

 

 

90,385

 

OTHER LONG-TERM LIABILITIES

 

 

 

7,104

 

 

 

 

7,287

 

 

 

 

 

1,344,343

 

 

 

 

995,593

 

COMMITMENTS AND CONTINGENCIES (Notes 1 and 10)

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

 

 

 

Common stock, 100,000,000 shares authorized, 47,163,284 and 47,105,744 issued and

   outstanding, par value $0.00001 as of March 31, 2017 and December 31, 2016,

   respectively

 

 

 

 

 

 

 

 

Paid-in capital

 

 

 

175,867

 

 

 

 

173,879

 

Retained earnings

 

 

 

125,581

 

 

 

 

124,560

 

Accumulated other comprehensive income

 

 

 

12

 

 

 

 

12

 

Total stockholders’ equity

 

 

 

301,460

 

 

 

 

298,451

 

Total liabilities and stockholders’ equity

 

$

 

1,645,803

 

 

$

 

1,294,044

 

 

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

2


 

ELDORADO RESORTS, INC.

CONSOLIDATED INCOME STATEMENT

(dollars in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

Casino

 

$

 

162,784

 

 

$

 

169,078

 

Pari-mutuel commissions

 

 

 

641

 

 

 

 

684

 

Food and beverage

 

 

 

29,513

 

 

 

 

33,739

 

Hotel

 

 

 

18,013

 

 

 

 

20,165

 

Other

 

 

 

8,595

 

 

 

 

10,885

 

 

 

 

 

219,546

 

 

 

 

234,551

 

Less-promotional allowances

 

 

 

(18,621

)

 

 

 

(20,985

)

Net operating revenues

 

 

 

200,925

 

 

 

 

213,566

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

Casino

 

 

 

90,453

 

 

 

 

96,262

 

Pari-mutuel commissions

 

 

 

1,207

 

 

 

 

1,324

 

Food and beverage

 

 

 

17,421

 

 

 

 

19,728

 

Hotel

 

 

 

6,603

 

 

 

 

7,129

 

Other

 

 

 

5,279

 

 

 

 

6,074

 

Marketing and promotions

 

 

 

10,056

 

 

 

 

9,574

 

General and administrative

 

 

 

31,775

 

 

 

 

31,655

 

Corporate

 

 

 

6,574

 

 

 

 

6,904

 

Depreciation and amortization

 

 

 

15,604

 

 

 

 

16,204

 

Total operating expenses

 

 

 

184,972

 

 

 

 

194,854

 

GAIN ON SALE OR DISPOSAL OF PROPERTY

 

 

 

32

 

 

 

 

71

 

ACQUISITION CHARGES

 

 

 

(1,614

)

 

 

 

(520

)

EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATE

 

 

 

(222

)

 

 

 

 

OPERATING INCOME

 

 

 

14,149

 

 

 

 

18,263

 

OTHER EXPENSE:

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

(12,670

)

 

 

 

(12,991

)

Loss on early retirement of debt, net

 

 

 

 

 

 

 

(66

)

Total other expense

 

 

 

(12,670

)

 

 

 

(13,057

)

NET INCOME BEFORE INCOME TAXES

 

 

 

1,479

 

 

 

 

5,206

 

PROVISION FOR INCOME TAXES

 

 

 

(458

)

 

 

 

(1,836

)

NET INCOME

 

$

 

1,021

 

 

$

 

3,370

 

Net Income per share of Common Stock:

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 

0.02

 

 

$

 

0.07

 

Diluted

 

$

 

0.02

 

 

$

 

0.07

 

Weighted Average Basic Shares Outstanding

 

 

 

47,120,751

 

 

 

 

46,933,094

 

Weighted Average Diluted Shares Outstanding

 

 

 

48,081,281

 

 

 

 

47,534,761

 

 

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

3


 

ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

NET INCOME

 

$

 

1,021

 

 

$

 

3,370

 

Other Comprehensive Income, net of tax:

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

Comprehensive Income, net of tax

 

$

 

1,021

 

 

$

 

3,370

 

 

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

4


 

ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Net income

 

$

 

1,021

 

 

$

 

3,370

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

15,604

 

 

 

 

16,204

 

Amortization of debt issuance costs and discount

 

 

 

877

 

 

 

 

847

 

Equity in loss of unconsolidated affiliate

 

 

 

222

 

 

 

 

 

Loss on early retirement of debt, net

 

 

 

 

 

 

 

66

 

Change in fair value of acquisition related contingencies

 

 

 

16

 

 

 

 

1

 

Stock-based compensation expense

 

 

 

1,733

 

 

 

 

1,454

 

Gain on sale or disposal of property

 

 

 

(32

)

 

 

 

(71

)

Provision for bad debts

 

 

 

218

 

 

 

 

145

 

Provision for deferred income taxes

 

 

 

414

 

 

 

 

1,706

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Restricted cash

 

 

 

352

 

 

 

 

(3,783

)

Accounts receivable

 

 

 

5,647

 

 

 

 

302

 

Inventories

 

 

 

(251

)

 

 

 

423

 

Prepaid expenses and other

 

 

 

(1,423

)

 

 

 

(1,162

)

Accounts payable

 

 

 

(5,551

)

 

 

 

3,591

 

Interest payable

 

 

 

(10,006

)

 

 

 

(7,258

)

Income taxes payable

 

 

 

67

 

 

 

 

130

 

Accrued and other liabilities and due to affiliates

 

 

 

(3,373

)

 

 

 

(5,112

)

Net cash provided by operating activities

 

 

 

5,535

 

 

 

 

10,853

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Capital expenditures, net of payables

 

 

 

(6,206

)

 

 

 

(10,624

)

Proceeds from sale of property and equipment

 

 

 

32

 

 

 

 

88

 

Cash escrow related to acquisition

 

 

 

(376,750

)

 

 

 

 

Reimbursement of capital expenditures from West Virginia regulatory authorities

 

 

 

 

 

 

 

1,692

 

(Increase) decrease in other assets, net

 

 

 

(148

)

 

 

 

171

 

Net cash used in investing activities

 

 

 

(383,072

)

 

 

 

(8,673

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of Senior Notes

 

 

 

375,000

 

 

 

 

 

Payments under Term Loan

 

 

 

(1,063

)

 

 

 

(1,063

)

Borrowings under Revolving Credit Facility

 

 

 

23,000

 

 

 

 

14,000

 

Payments under Revolving Credit Facility

 

 

 

(29,000

)

 

 

 

(48,500

)

Principal payments on capital leases

 

 

 

(94

)

 

 

 

(68

)

Debt issuance costs

 

 

 

(7,016

)

 

 

 

(194

)

Taxes paid related to net share settlement of equity awards

 

 

 

(179

)

 

 

 

(534

)

Proceeds from exercise of stock options

 

 

 

434

 

 

 

 

 

Net cash provided by (used in) financing activities

 

 

 

361,082

 

 

 

 

(36,359

)

DECREASE IN CASH AND CASH EQUIVALENTS

 

 

 

(16,455

)

 

 

 

(34,179

)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

 

 

 

61,029

 

 

 

 

78,278

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

 

44,574

 

 

$

 

44,099

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

 

23,546

 

 

$

 

19,422

 

Cash refund received during period for income taxes

 

 

 

(20

)

 

 

 

 

NON-CASH FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

Payables for capital expenditures

 

 

 

2,312

 

 

 

 

95

 

 

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

5


 

ELDORADO RESORTS, INC.

CONDENSED 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 of March 31, 2017, ERI owned and operated the following properties:

 

 

Eldorado Resort Casino Reno (Eldorado Reno)A 814-room hotel, casino and entertainment facility connected via an enclosed skywalk to Silver Legacy and Circus Reno located in downtown Reno, Nevada that includes 1,142 slot machines, 46 table games and an 11 table poker room;

 

Silver Legacy Resort Casino (Silver Legacy)A 1,711-room themed hotel and casino connected via an enclosed skywalk to Eldorado Reno and Circus Reno that includes 1,212 slot machines and 63 table games;

 

Circus Circus Reno (Circus Reno)A 1,571-room hotel-casino and entertainment complex connected via an enclosed skywalk to Eldorado Reno and Silver Legacy that includes 695 slot machines and 27 table games;

 

Eldorado Resort Casino Shreveport (Eldorado Shreveport)A 403-room, all suite art deco-style hotel and tri-level riverboat dockside casino situated on the Red River in Shreveport, Louisiana that includes 1,387 slot machines, 52 table games and an eight table poker room;

 

Mountaineer Casino, Racetrack & Resort (Mountaineer)A 354-room hotel, casino and entertainment facility and live thoroughbred horse racing located on the Ohio River at the northern tip of West Virginias northwestern panhandle that includes 1,510 slot machines, 36 table games and a 10 table poker room;

 

Presque Isle Downs & Casino (Presque Isle Downs)A casino and live thoroughbred horse racing facility with 1,594 slot machines, 32 table games and a seven table poker room located in Erie, Pennsylvania; and

 

Eldorado Gaming Scioto Downs (Scioto Downs)A modern racino offering 2,206 video lottery terminals (VLT) and harness racing located 15 minutes from downtown Columbus, Ohio.

 

The Company acquired Mountaineer, Presque Isle Downs and Scioto Downs in September 2014 pursuant to a merger (the “MTR Merger”) with MTR Gaming Group, Inc. (“MTR Gaming”) and in November 2015 it acquired Circus Reno and the interests in the Silver Legacy that it did not own prior to such date (the “Reno Acquisition”).

In addition, on May 1, 2017, the Company consummated its acquisition of Isle of Capri Casinos, Inc. and acquired the following properties:

 

 

 

Isle Casino HotelBlack HawkA land-based casino on an approximately 10-acre site in Black Hawk, Colorado that includes 1,086 slot machines, 25 table games, a nine table poker room and a 238-room hotel;

 

 

 

Lady Luck CasinoBlack HawkA land based casino across the intersection from Isle Casino Hotel in Black Hawk, Colorado, that includes 455 slot machines, 10 table games, five poker tables and a 164-room hotel with a parking structure connecting Isle Casino Hotel-Black Hawk and Lady Luck Casino-Black Hawk;

 

 

 

PompanoA casino and harness racing track on an approximately 223-acre owned site in Pompano Beach, Florida, that includes 1,446 slot machines and a 42 table poker room;

 

 

 

BettendorfA land-based single-level casino located off of Interstate 74 in Bettendorf, Iowa that includes 969 slot machines and 19 table games with two hotel towers with 509 hotel rooms;

  

 

 

WaterlooA single-level land-based casino in Waterloo, Iowa that includes 948 slot machines, 25 table games, four poker tables and a 195-room hotel;

 

 

 

Isle of Capri Casino Hotel Lake CharlesA gaming vessel on an approximately 19 acre site in Lake Charles, Louisiana, with 1,157 slot machines, 49 table games, including 13 poker tables and two hotels offering 493 rooms;

 

6


 

 

 

LulaTwo dockside casinos in Lula, Mississippi with 885 slot machines and 21 table games, two on-site hotels with a total of 451 rooms and a 28-space RV Park;

 

 

 

VicksburgA dockside casino in Vicksburg, Mississippi that includes 613 slot machines, 7 table games and a hotel with a total of 89 rooms;

 

 

 

BoonvilleA single-level dockside casino in Boonville, Missouri that includes 914 slot machines, 20 table games and a 140-room hotel;

 

 

 

Cape GirardeauA dockside casino and pavilion and entertainment center in Cape Girardeau, Missouri that includes 930 slot machines, 22 table games and 4 poker tables;

 

 

 

CaruthersvilleA riverboat casino located along the Mississippi River in Caruthersville, Missouri that includes 557 slot machines and nine table games;

 

 

 

Kansas CityA dockside casino located close to downtown Kansas City, Missouri offering 977 slot machines and 18 table games; and

 

 

 

NemacolinA casino property located on the 2,000 acre Nemacolin Woodlands Resort in Western Pennsylvania that includes 597 slot machines and 29 table games.

 

On August 22, 2016, Isle entered an agreement to sell Isle of Capri Casino Hotel Lake Charles for aggregate consideration of $134.5 million, subject to certain adjustments. The transaction is expected to be completed in 2017, subject to Louisiana Gaming Board approval and other customary closing conditions.

Acquisition of Isle of Capri Casinos, Inc.

On May 1, 2017, the Company completed its acquisition of Isle of Capri Casinos, Inc. pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) dated as of September 19, 2016 with Isle of Capri Casinos, Inc., a Delaware corporation (“Isle” or “Isle of Capri”), Eagle I Acquisition Corp., a Delaware corporation and a direct wholly-owned subsidiary of the Company, and Eagle II Acquisition Company LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of the Company (the “Isle Acquisition” or the “Isle Merger”). As a result of the Merger, Isle became a wholly-owned subsidiary of ERI and each outstanding share of Isle’s stock converted into the right to receive $23.00 in cash or 1.638 shares of ERI common stock, at the election of the applicable Isle shareholder and subject to proration such that the outstanding shares of Isle common stock were exchanged for aggregate consideration comprised of 58% cash, or $552.0 million, and 42% ERI common stock, or 28.5 million newly issued shares of ERI common stock.

Acquisition charges totaling $1.6 million, attributed to the Isle Acquisition, are reported on the accompanying statement of operations related to legal, accounting, financial advisory services and other costs during the quarter ended March 31, 2017. Additionally, $7.8 million of accrued costs and expenses related to the Isle Acquisition are included in accrued other liabilities as of March 31, 2017.

In connection with the Isle Acquisition, the Company completed a debt financing transaction comprised of: (a) a senior secured credit facility in an aggregate principal amount of $1.75 billion with a (i) term loan facility of $1.45 billion and (ii) revolving credit facility of $300 million and (b) $375 million of senior unsecured notes. The proceeds of such borrowings were used (w) to pay consideration in the Isle Merger, (x) refinance all of Isle’s existing credit facilities and senior and senior subordinated notes, (y) refinance the Company’s existing credit facility and (z) pay transaction fees and expenses related to the foregoing. (See Note 6 for further discussion of the terms of such indebtedness and the timing related to the escrow funding on the new $375 million senior unsecured notes).

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States 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.

7


 

The executive decision makers of our Company review operating results, assess performance and make decisions on a “significant market” basis. The Company’s management views each of its properties as an operating segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, the regulatory environments in which they operate, and their management and reporting structure. The Company’s principal operating activities occur in three geographic regions: Nevada, Louisiana and parts of the eastern United States. The Company has aggregated its operations into three reportable segments based on the similar characteristics of the operating segments within the regions in which they operate. We, therefore, consider Eldorado Reno, Silver Legacy and Circus Reno as Nevada, Eldorado Shreveport as Louisiana, and Scioto Downs, Presque Isle Downs and Mountaineer as Eastern.

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, 2016.

Reclassifications

Certain reclassifications of prior year presentations have been made to conform to the current period presentation.

Recently Issued Accounting Pronouncements

In May 2014 (amended January 2017), the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014‑09, “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 eliminates existing industry guidance, including revenue recognition guidance specific to the gaming industry. The FASB has also recently issued several amendments to the standard, including narrow-scope improvements and practical expedients (ASU 2016-12) and clarification on accounting for and identifying performance obligations (ASU 2016-10). The core principle of the revenue model indicates 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 interim and annual periods beginning after December 15, 2017, and should be applied using the full retrospective method or retrospectively with the cumulative effect initially applying the guidance recognized at the date of initial application. While early adoption is permitted for interim and annual periods beginning after December 15, 2016, we anticipate adopting this standard on January 1, 2018. We are currently in the process of evaluating the full impact adoption of ASU 2014‑09 (as amended) will have on our consolidated financial statements; however, we anticipate this new standard will likely have a material impact on our consolidated financial statements.

We expect the most significant effect upon adoption of ASU 2014-09 (as amended) will likely be related to 1) the accounting for our customer loyalty program (no longer be recorded at cost, and a deferred revenue model will likely be used to account for the classification and timing of revenue recognized as well as the classification of related expenses for loyalty point redemptions) and 2) the elimination of promotional allowances (the presentation of goods and services provided to our customers without charge, included in gross revenue with a corresponding reduction in promotional allowances, will no longer be reported as revenue and will be recognized based on relative standalone selling prices for transactions with more than one performance obligation). As a result, we expect that gaming revenues will be reduced with a corresponding increase, in total, to food and beverage, hotel, and other revenues. Given our evaluation process is ongoing, the quantitative effects of these changes have not yet been fully determined and are still being analyzed.

In January 2017, the FASB issued Accounting Standards Update ASU No. 2017-04, “Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment.” This amended guidance is intended to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of goodwill. Under the amended guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The elimination of Step 2 from the goodwill impairment test should reduce the cost and complexity of evaluating goodwill for impairment. Amendments should be applied on a prospective basis disclosing the nature of and reason for the change in accounting principle upon transition. Disclosure should be provided in the first annual period and in the interim period in which the entity initially adopts the amendments. Updated amendments are effective for the interim and annual periods beginning after December 15, 2019, and early adoption is permitted. We currently plan to implement the updated guidance when we perform our annual goodwill impairment assessment as of October 1, or earlier, if impairment indicators are identified.

8


 

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations – Clarifying the Definition of a Business.” This amendment is intended to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisition (or disposals) of assets or businesses. Amendments in this update provide a more robust framework to use in determining when a set of assets and activities is a business and to provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. The amendments are effective for interim and annual periods beginning after December 15, 2017. Early adoption is allowed as follows: (1) transactions for which acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance and (2) transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. We anticipate adopting this standard on January 1, 2018 and that, following adoption, acquisitions that do not involve substantive processes will be accounted for as asset acquisitions.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows – Restricted Cash.” This guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash and cash equivalents. The amendments in this update are effective for the interim and annual periods beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. We currently anticipate adopting this accounting standard during the first quarter of 2018 and we are currently evaluating the impact on our consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” This new guidance is intended to reduce diversity in practice in how certain cash receipts and payments are classified in the statement of cash flows, including debt prepayment or extinguishment costs, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, and distributions from certain equity method investees. The guidance is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The guidance requires application using a retrospective transition method. We currently anticipate adopting this accounting standard during the first quarter of 2018 and we are currently evaluating the impact of adopting this guidance on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Accounting for Credit Losses,” which amends the guidance on the impairment of financial instruments. This update adds an impairment model (known as the current expected credit losses model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes, as an allowance, its estimate of expected credit losses. The effective date for this update is for the annual and interim periods beginning after December 15, 2019 and early adoption is permitted beginning after December 15, 2018. We are currently evaluating the impact of adopting this guidance on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02 which addresses the recognition and measurement of leases. Under the new guidance, for all leases (with the exception of short-term leases), at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Further, the new lease guidance simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and liabilities, which no longer provides a source for off balance sheet financing. The effective date for this update is for the annual and interim periods beginning after December 15, 2018 with early adoption permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements.

Currently, we do not have any material capital leases nor any material operating leases where we are the lessor. Our operating leases, primarily relating to certain ground leases and slot machines or video lottery terminals (VLTs), will be recorded on the balance sheet as an ROU asset with a corresponding lease liability, which will be amortized using the effective interest rate method as payments are made. The ROU asset will be depreciated on a straight-line basis and recognized as lease expense. The qualitative and quantitative effects of adoption of ASU 2016-02 are still being analyzed, and we are in the process of evaluating the full effect the new guidance will have on our consolidated financial statements.

9


 

In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory,” which requires that inventory within the scope of ASU 2015-11 be measured at the lower of cost and net realizable value. Inventory measured using last-in, first-out (LIFO) and the retail inventory method are not impacted by the new guidance. ASU 2015-11 applies to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of ASU 2015-11 at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for annual periods beginning after December 15, 2016. As of March 31, 2017, we adopted this guidance which had no significant impact on our consolidated financial statements and disclosures.

 

Note 2. Investment in Unconsolidated Affiliates

Hotel Partnership.  The Company holds a 42.1% variable interest in a partnership with other investors that developed a new 118-room Hampton Inn & Suites hotel at Scioto Downs that opened in March 2017. Pursuant to the terms of the partnership agreement, the Company contributed $1.0 million of cash and 2.4 acres of a leasehold immediately adjacent to The Brew Brothers microbrewery and restaurant at Scioto Downs. The partnership constructed the hotel at a cost of $16.0 million and other investor members operate the hotel. The Company is not the primary beneficiary, and therefore, the entity is accounted for under the equity method of accounting. At March 31, 2017, the Company’s investment in the partnership was $1.1 million, classified as “Investment in and advances to unconsolidated affiliates” in the consolidated balance sheets, representing the Company’s maximum exposure to loss.

 

Note 3. Stock-Based Compensation

The Company has authorized common stock of 100,000,000 shares, par value $0.00001 per share.

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation. Total stock-based compensation expense recognized was $1.7 million and $1.5 million for the three months ended March 31, 2017 and 2016, respectively. These amounts are included in corporate expenses in the Company’s consolidated statements of operations. We recognized a reduction in income tax expense of $0.1 million and $0.4 million for the three months ended March 31, 2017 and 2016, respectively, for excess tax benefits related to stock-based compensation.

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, 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. Payout ranges are from 0% up to 200% of the award target.

On January 27, 2017, the Company granted 298,761 RSUs to executive officers and key employees, and 46,282 RSUs to non-employee members of the BOD under the 2015 Plan. The RSUs had a fair value of $15.50 per unit which was the NASDAQ closing price on that date. An additional 2,982 RSUs were also granted to key employees during the three months ended March 31, 2017.

A summary of the RSU activity for the three months ended March 31, 2017 is as follows:

 

 

 

 

 

 

Weighted-Average

 

 

Weighted-Average

 

 

 

 

 

 

 

Equity

 

 

Grant Date

 

 

Remaining

 

Aggregate

 

 

 

Awards

 

 

Fair Value

 

 

Contractual Life

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

(in years)

 

 

(in millions)

 

Unvested outstanding as of December 31, 2016

 

 

982,370

 

 

$

6.45

 

 

1.41

 

$

6.33

 

Granted

 

 

348,025

 

(1)

 

 

15.50

 

 

 

 

 

 

 

 

Vested

 

 

(69,906

)

 

 

12.19

 

 

 

 

 

 

 

 

Unvested outstanding as of March 31, 2017

 

 

1,260,489

 

 

$

 

8.63

 

 

1.58

 

$

 

10.87

 

 

(1)

Includes 100,581 of performance awards at 100% of target and 247,444 time-based awards at 100% of target.

As of March 31, 2017, the Company had approximately $6.2 million of unrecognized compensation expense related to unvested RSUs that is expected to be recognized over a weighted-average period of approximately 1.58 years.

10


 

During the three months ended March 31, 2016, the Company’s chief operating officer terminated employment and the chief financial officer retired. In conjunction with the termination and retirement, unvested RSUs totaling 167,511, which were outstanding as of December 31, 2015, immediately vested representing an additional $0.5 million included in stock compensation expense during the first quarter of 2016. Additionally, severance costs totaling $1.4 million were recognized in the first quarter of 2016.

A summary of the ERI Stock Option activity for the three months ended March 31, 2017 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

 

 

 

 

 

 

Range of

 

 

Weighted-Average

 

 

Remaining

 

 

Aggregate

 

 

 

Options

 

 

Exercise Prices

 

 

Exercise Price

 

 

Contractual Life

 

 

Intrinsic Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in years)

 

 

(in millions)

 

Outstanding and Exercisable as of December 31, 2016

 

 

169,300

 

 

$

2.44

 

-

$

16.27

 

 

$

 

9.94

 

 

 

 

0.86

 

 

$

 

1.2

 

Expired

 

 

(51,700

)

 

$

2.44

 

-

$

3.94

 

 

 

 

2.97

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(25,000

)

 

$

14.79

 

-

$

16.27

 

 

$

 

13.22

 

 

 

 

 

 

 

 

 

 

 

Outstanding and Exercisable as of March 31, 2017

 

 

92,600

 

 

$

3.94

 

-

$

16.27

 

 

$

 

11.55

 

 

 

 

1.03

 

 

$

 

0.5

 

 

Note 4. Other and Intangible Assets, net

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(unaudited)

 

 

 

 

 

 

Goodwill

 

$

 

66,826

 

 

$

 

66,826

 

Gaming license (indefinite-lived)

 

$

 

482,074

 

 

$

 

482,074

 

Trade names

 

 

 

9,800

 

 

 

 

9,800

 

Loyalty programs

 

 

 

7,700

 

 

 

 

7,700

 

Subtotal

 

 

 

499,574

 

 

 

 

499,574

 

Accumulated amortization trade names

 

 

 

(4,854

)

 

 

 

(4,376

)

Accumulated amortization loyalty programs

 

 

 

(7,700

)

 

 

 

(7,700

)

Total gaming licenses and other intangible assets

 

$

 

487,020

 

 

$

 

487,498

 

Non-operating real property

 

$

 

14,219

 

 

$

 

14,219

 

 

 

 

 

 

 

 

 

 

 

 

Land held for development

 

$

 

906

 

 

$

 

906

 

Other

 

 

 

12,598

 

 

 

 

9,214

 

Total other assets, net

 

$

 

13,504

 

 

$

 

10,120

 

 

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 March 31, 2017.

Included in gaming licenses is the Eldorado Shreveport gaming license recorded at $20.6 million at both March 31, 2017 and December 31, 2016. The license represents an intangible asset 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 in the jurisdiction. Also included in gaming licenses are the gaming and racing licenses of Mountaineer, Presque Isle Downs and Scioto Downs totaling $461.5 million at March 31, 2017 and December 31, 2016. These gaming license rights are not subject to amortization as the Company has determined that they have an indefinite useful life.

Trade names related to the MTR Merger are amortized on a straight‑line basis over a 3.5 year useful life. Trade names related to the Reno Acquisition are non-amortizable, and loyalty programs are amortized on a straight‑line basis over a one year useful life. Amortization expense with respect to trade names and the loyalty program for the three months ended March 31, 2017 amounted to $0.5 million and $0.0 million, respectively, and $1.2 million and $1.9 million for the three months ended March 31, 2016, respectively, which is included in depreciation and amortization expense in the consolidated statements of operations. Such amortization expense is expected to be $1.4 million for the remainder of December 31, 2017 and $0.4 million for the year ended December 31, 2018.

The Company’s goodwill, indefinite-lived gaming licenses and trade names are 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.

11


 

Non-operating real property totaled $14.2 million at March 31, 2017 and at December 31, 2016.  

As of March 31, 2017 and December 31, 2016, other assets includes $7.1 million and $3.8 million, respectively, in costs paid associated with the refinancing transactions. (See Note 6 for more information). 

Note 5. Income Taxes

The Company and its subsidiaries file US federal income tax returns and various state and local income tax returns. The Company does not have tax sharing agreements with the other members within the consolidated ERI group. With few exceptions, the Company is no longer subject to US federal or state and local tax examinations by tax authorities for years before 2013.

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.

For the three months ended March 31, 2017 and 2016, the difference between the effective rate and the statutory rate is attributed primarily to state and local income taxes less excess tax benefits associated with stock compensation.

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.

For the three months ended March 31, 2017 and 2016, the Company’s tax expense was $0.5 million and $1.8 million, respectively. As of March 31, 2017 and 2016, there were 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.

The Company was notified by the Internal Revenue Service in October of 2016 that its federal tax return for the year ended December 31, 2014 had been selected for examination. As of March 31, 2017, there have been no proposed adjustments. We believe that our tax positions are appropriate and that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with our expectations, we would be required to adjust our provision for income taxes in the period such resolution occurs. While the Company believes its reported results are materially accurate, any significant adjustments could have a material adverse effect on the Company’s results of operations, cash flows and financial position if not resolved within expectations.

Note 6. Long‑Term Debt

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(unaudited)

 

 

 

 

 

 

6% Senior Notes

 

$

 

375,000

 

 

$

 

 

Less: Unamortized debt issuance costs

 

 

 

(3,780

)

 

 

 

 

Net

 

 

 

371,220

 

 

 

 

 

7% Senior Notes

 

 

 

375,000

 

 

 

 

375,000

 

Less: Unamortized debt issuance costs

 

 

 

(7,919

)

 

 

 

(8,141

)

Net

 

 

 

367,081

 

 

 

 

366,859

 

Term Loan

 

 

 

417,563

 

 

 

 

418,625

 

Less: Unamortized discount and debt issuance costs

 

 

 

(12,066

)

 

 

 

(12,578

)

Net

 

 

 

405,497

 

 

 

 

406,047

 

Revolving Credit Facility

 

 

 

23,000

 

 

 

 

29,000

 

Less: Unamortized debt issuance costs

 

 

 

(1,881

)

 

 

 

(2,023

)

Net

 

 

 

21,119

 

 

 

 

26,977

 

Capital leases

 

 

 

449

 

 

 

 

543

 

Less: Current portion

 

 

 

(4,552

)

 

 

 

(4,545

)

Total long-term debt

 

$

 

1,160,814

 

 

$

 

795,881

 

12


 

 

Scheduled maturities of long‑term debt are $23.0 million in 2020, $395.3 million in 2022, $375.0 million in 2023, and $375.0 million in 2025. Debt issuance costs and the discount associated with the issuance of the 7% Senior Notes, Term Loan and Revolving Credit Facility (as such terms are defined below) in July 2015 totaled $26.3 million. Amortization of debt issuance costs is computed using the effective interest method and is included in interest expense. Amortization of the debt issuance costs and the discount associated with the 7% Senior Notes and Credit Facility (as defined below) totaled $0.9 million and $0.8 million for the three months ended March 31, 2017 and 2016, respectively.

We are a holding company with no independent assets or operations. Our 6% Senior Notes and 7% Senior Notes (each as defined below) are fully and unconditionally guaranteed, on a joint and several basis, by substantially all of our subsidiaries. Any subsidiaries which have not guaranteed such notes are “minor” (as defined in Rule 3-10(h) of Regulation S-X). As of March 31, 2017, there were no significant restrictions on the ability of our subsidiaries to distribute cash to us or our guarantor subsidiaries.

In conjunction with the closing of the Isle Acquisition we incurred additional financing costs associated with the related financing transactions (as defined below). Such costs are commensurate with the transaction, a portion of which will be recorded as additional debt issuance costs.

Senior Notes

7.0% Senior Notes

On July 23, 2015, the Company issued $375.0 million in aggregate principal amount of 7.0% senior notes due 2023 (“7% 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 7% Senior Notes. The 7% Senior Notes are guaranteed by all of the Company’s direct and indirect restricted subsidiaries. CC-Reno, LLC and the Silver Legacy Joint Venture became guarantors in June 2016 upon receipt of the required gaming regulatory approval which occurred in May 2016. The 7% Senior Notes will mature on August 1, 2023, with interest payable semi-annually in arrears on February 1 and August 1 of each year.

On or after August 1, 2018, the Company may redeem all or a portion of the 7% 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 7% 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

 

%

 

Prior to August 1, 2018, the Company may redeem all or a portion of the 7% Senior Notes at a price equal to 100% of the 7% 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 7% Senior Notes with proceeds of certain equity financings at a redemption price equal to 107% of the principal amount of the 7% 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 7% 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 7% Senior Notes at 100% of their principal amount, plus accrued and unpaid interest to the applicable repurchase date.

The 7% 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 7% Senior Notes or the guarantees of the 7% Senior Notes;

13


 

 

create liens;

 

transfer and sell assets;

 

merge, consolidate, or sell, transfer 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 7% Senior Notes to be declared due and payable. As of March 31, 2017, the Company was in compliance with all of the covenants under the Indenture relating to the 7% Senior Notes.

6.0% Senior Notes

On March 29, 2017, Eagle II Acquisition Company LLC (“Eagle II”), a wholly-owned subsidiary of the Company, issued $375.0 million aggregate principal amount of 6% Senior Notes due 2025 (the “6% Senior Notes”) pursuant to an indenture, dated as of March 29, 2017 (the “New Indenture”), between Eagle II and U.S. Bank, National Association, as Trustee. The 6% Senior Notes will mature on April 1, 2025, with interest payable semi-annually in arrears on April 1 and October 1, commencing October 1, 2017. The proceeds of the offering, and additional funds in the amount of $1.9 million in respect of interest expected to be accrued on the 6% Notes, were placed in escrow pending satisfaction of certain conditions, including consummation of the Isle Acquisition. In connection with the consummation of the Isle Acquisition on May 1, 2017, the escrowed funds were released and ERI assumed Eagle II’s obligations under the 6% Senior Notes and the New Indenture and certain of ERI’s subsidiaries (including Isle and certain of its subsidiaries) executed guarantees of ERI’s obligations under the 6% Senior Notes.

On or after April 1, 2020, the Issuer may redeem all or a portion of the 6% 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 6% Senior Notes redeemed, to the applicable redemption date, if redeemed during the 12-month period beginning on April 1 of the years indicated below:

Year

 

Percentage

 

 

2020

 

 

104.500

 

%

2021

 

 

103.000

 

%

2022

 

 

101.500

 

%

2023 and thereafter

 

 

100.000

 

%