Attached files
file | filename |
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EX-99.3 - EX-99.3 - Caesars Entertainment, Inc. | d597973dex993.htm |
EX-23.1 - EX-23.1 - Caesars Entertainment, Inc. | d597973dex231.htm |
8-K/A - 8-K/A - Caesars Entertainment, Inc. | d597973d8ka.htm |
Exhibit 99.2
Elgin Riverboat ResortRiverboat Casino
Financial Statements as of December 31, 2017 and 2016 and for the Three Years in the Period Ended December 31, 2017, and Independent Auditors Report
ELGIN RIVERBOAT RESORTRIVERBOAT CASINO
TABLE OF CONTENTS
Page | ||
INDEPENDENT AUDITORS REPORT |
12 | |
FINANCIAL STATEMENTS: |
||
Balance Sheets as of December 31, 2017 and 2016 |
3 | |
Statements of Income for the three years in the period ended December 31, 2017 |
4 | |
Statements of Partners Equity for the three years in the period ended December 31, 2017 |
5 | |
Statements of Cash Flows for the three years in the period ended December 31, 2017 |
6 | |
Notes to Financial Statements |
712 |
Deloitte & Touche LLP 111 Monument Circle Suite 4200 Indianapolis, IN 46204-5105 USA
Tel: +1 317 464 8600 Fax: +1 317 464 8500 www.deloitte.com |
To the Partners of the
Elgin Riverboat ResortRiverboat Casino
Elgin, Illinois
We have audited the accompanying financial statements of Elgin Riverboat ResortRiverboat Casino (the Joint Venture), which comprise the balance sheets as of December 31, 2017 and 2016, and the related statements of income, partners equity, and cash flows for the three years in the period ended December 31, 2017, and the related notes to the financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Joint Ventures preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Joint Ventures internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Elgin Riverboat ResortRiverboat Casino as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the three years in the period ended December 31, 2017 in accordance with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
February 13, 2018
- 2 -
ELGIN RIVERBOAT RESORTRIVERBOAT CASINO
AS OF DECEMBER 31, 2017 AND 2016
2017 | 2016 | |||||||
ASSETS |
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CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 27,963,886 | $ | 27,817,301 | ||||
Accounts receivablenet of allowance for doubtful accounts of $15,000 and $10,000, respectively |
17,300 | 11,500 | ||||||
Inventories |
258,541 | 249,587 | ||||||
Prepaid expenses |
876,361 | 890,259 | ||||||
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Total current assets |
29,116,088 | 28,968,647 | ||||||
PROPERTY AND EQUIPMENTNet |
37,824,681 | 37,783,528 | ||||||
OTHER ASSETS |
1,106,901 | 815,471 | ||||||
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TOTAL |
$ | 68,047,670 | $ | 67,567,646 | ||||
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LIABILITIES AND PARTNERS EQUITY |
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CURRENT LIABILITIES: |
||||||||
Accounts payable |
$ | 1,485,540 | $ | 2,547,861 | ||||
Accrued liabilities |
15,979,827 | 16,238,566 | ||||||
Due to affiliates |
126,293 | 125,710 | ||||||
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Total current liabilities |
17,591,660 | 18,912,137 | ||||||
OTHER LIABILITIES |
1,013,920 | 727,491 | ||||||
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Total liabilities |
18,605,580 | 19,639,628 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 5 and 6) |
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PARTNERS EQUITY |
49,442,090 | 47,928,018 | ||||||
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TOTAL |
$ | 68,047,670 | $ | 67,567,646 | ||||
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See notes to financial statements.
- 3 -
ELGIN RIVERBOAT RESORTRIVERBOAT CASINO
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
2017 | 2016 | 2015 | ||||||||||
REVENUES: |
||||||||||||
Casino |
$ | 156,971,760 | $ | 153,286,887 | $ | 161,788,497 | ||||||
Food and beverage |
12,522,053 | 12,761,669 | 13,349,104 | |||||||||
Admissions and other |
6,391,097 | 6,231,450 | 7,375,416 | |||||||||
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Total revenues |
175,884,910 | 172,280,006 | 182,513,017 | |||||||||
Less casino promotional allowances |
(11,775,461 | ) | (11,777,098 | ) | (12,695,760 | ) | ||||||
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Revenuesnet |
164,109,449 | 160,502,908 | 169,817,257 | |||||||||
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OPERATING EXPENSES: |
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Casino |
89,614,688 | 86,930,730 | 91,617,079 | |||||||||
Food and beverage |
4,499,429 | 4,400,335 | 4,532,953 | |||||||||
General and administrative |
11,436,103 | 10,205,071 | 10,715,562 | |||||||||
Charitable donations |
7,449,357 | 7,186,157 | 8,596,141 | |||||||||
Depreciation and amortization |
7,103,894 | 6,647,814 | 7,041,841 | |||||||||
Preferred distribution |
1,684,312 | 1,636,342 | 1,715,020 | |||||||||
Other operating expenses |
14,709,480 | 13,466,621 | 15,124,859 | |||||||||
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Total operating expenses |
136,497,263 | 130,473,070 | 139,343,455 | |||||||||
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OPERATING INCOME |
27,612,186 | 30,029,838 | 30,473,802 | |||||||||
OTHER INCOMENet |
1,886 | 639,168 | 1,644 | |||||||||
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NET INCOME |
$ | 27,614,072 | $ | 30,669,006 | $ | 30,475,446 | ||||||
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See notes to financial statements.
- 4 -
ELGIN RIVERBOAT RESORTRIVERBOAT CASINO
STATEMENTS OF PARTNERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
Nevada Landing Partnership |
RBG, L.P. | Total | ||||||||||
BALANCEJanuary 1, 2015 |
$ | 24,491,783 | $ | 24,491,783 | $ | 48,983,566 | ||||||
Net income |
15,237,723 | 15,237,723 | 30,475,446 | |||||||||
Distributions to partners |
(16,850,000 | ) | (16,850,000 | ) | (33,700,000 | ) | ||||||
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BALANCEDecember 31, 2015 |
$ | 22,879,506 | $ | 22,879,506 | $ | 45,759,012 | ||||||
Net income |
15,334,503 | 15,334,503 | 30,669,006 | |||||||||
Distributions to partners |
(14,250,000 | ) | (14,250,000 | ) | (28,500,000 | ) | ||||||
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BALANCEDecember 31, 2016 |
23,964,009 | 23,964,009 | 47,928,018 | |||||||||
Net income |
13,807,036 | 13,807,036 | 27,614,072 | |||||||||
Distributions to partners |
(13,050,000 | ) | (13,050,000 | ) | (26,100,000 | ) | ||||||
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BALANCEDecember 31, 2017 |
$ | 24,721,045 | $ | 24,721,045 | $ | 49,442,090 | ||||||
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See notes to financial statements.
- 5 -
ELGIN RIVERBOAT RESORTRIVERBOAT CASINO
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
2017 | 2016 | 2015 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net income |
$ | 27,614,072 | $ | 30,669,006 | $ | 30,475,446 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
7,103,894 | 6,647,814 | 7,041,841 | |||||||||
Loss on disposal of assets |
| (909 | ) | (386 | ) | |||||||
Changes in assets and liabilities: |
||||||||||||
Accounts receivable |
(5,800 | ) | (21,414 | ) | 103,141 | |||||||
Inventories |
(8,954 | ) | 88,745 | 13,673 | ||||||||
Prepaid expenses |
13,898 | (80,408 | ) | (117,657 | ) | |||||||
Other assets |
(291,430 | ) | (206,050 | ) | (77,245 | ) | ||||||
Accounts payable |
(87,498 | ) | (418,442 | ) | 112,791 | |||||||
Accrued liabilities |
(258,739 | ) | (1,369,635 | ) | 823,539 | |||||||
Due to affiliates |
583 | (22,370 | ) | 8,142 | ||||||||
Other liabilities |
286,429 | 231,050 | 87,162 | |||||||||
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Net cash provided by operating activities |
34,366,455 | 35,517,387 | 38,470,447 | |||||||||
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CASH FLOWS USED IN INVESTING ACTIVITIES: |
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Capital expenditures |
(7,876,738 | ) | (8,271,614 | ) | (4,912,148 | ) | ||||||
Construction in progress |
(243,132 | ) | 49,390 | 30,716 | ||||||||
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Net cash used in investing activities |
(8,119,870 | ) | (8,222,224 | ) | (4,881,432 | ) | ||||||
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CASH FLOWS USED IN FINANCING ACTIVITYDistributions to partners |
(26,100,000 | ) | (28,500,000 | ) | (33,700,000 | ) | ||||||
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Net cash used in financing activities |
(26,100,000 | ) | (28,500,000 | ) | (33,700,000 | ) | ||||||
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
146,585 | (1,204,837 | ) | (110,985 | ) | |||||||
CASH AND CASH EQUIVALENTS: |
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Beginning of year |
27,817,301 | 29,022,138 | 29,133,123 | |||||||||
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End of year |
$ | 27,963,886 | $ | 27,817,301 | $ | 29,022,138 | ||||||
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCapital expenditures incurred but not yet paid |
$ | 615,640 | $ | 1,590,463 | $ | 127,452 | ||||||
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See notes to financial statements.
- 6 -
ELGIN RIVERBOAT RESORTRIVERBOAT CASINO
1. | BUSINESS |
Elgin Riverboat ResortRiverboat Casino (the Joint Venture), doing business as the Grand Victoria Casino, was formed in December 1992, as a partnership under the Joint Venture Agreement between RBG, L.P. (Managing Partner) and Nevada Landing Partnership, in which each owns a 50% interest.
The Joint Venture is licensed by the Illinois Gaming Board (IGB) to own and operate a riverboat casino on the Fox River in Elgin, Illinois. The original license was issued on October 6, 1994. On October 7, 2016, the IGB approved the renewal of the license for another term of four years.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Cash and Cash EquivalentsCash and cash equivalents include investments and interest-bearing instruments with an original maturity of three months or less. Such investments are recorded at the lower of cost or market value. The Joint Venture maintains cash balances at a financial institution in excess of federally insured limits. Included in cash and cash equivalents is $300,000 of restricted cash related to the certificate of deposit used as collateral (refer to Note 9).
InventoriesInventories, consisting of food, beverage and gift shop items, are stated at the lower of cost or market value. Cost is determined by the first-in, first-out method.
Property and EquipmentProperty and equipment are stated at cost. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:
Buildings |
39 years | |||
Riverboat |
20 years | |||
Leasehold improvements |
15 years | |||
Furniture, fixtures and equipment, and gaming equipment |
25 years |
Long-Lived AssetsThe Joint Venture reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. If undiscounted expected future cash flows are less than the carrying value, an impairment loss would be recognized equal to an amount by which the carrying value exceeds the fair value of the asset. The factors considered by the Joint Venture in performing this assessment include current operating results, trends and prospects, as well as the effect of obsolescence, demand, competition and other economic factors. No impairment of long-lived assets was recognized by the Joint Venture during 2017, 2016, or 2015.
- 7 -
Reserve for Players ClubThe Joint Ventures players club allows customers to earn points based on the volume of slot play. Points are redeemable for cash back incentives.
The Joint Venture has accrued a liability for all points earned but not yet redeemed by active slot club members. This average cost has been determined to be 33.51% of the retail value.
Revenue RecognitionCasino revenues are recorded as the net win from gaming activities, which is the difference between gaming wins and losses, with liabilities recognized for funds deposited by customers before gaming play occurs and for chips in the customers possession. Jackpots, other than the incremental amount of progressive jackpots, are recognized at the time they are won by customers. The Joint Venture accrues the incremental amount of progressive jackpots as the progressive machine is played and the progressive jackpot amount increases, with a corresponding reduction of casino revenue. Food, beverage, admissions and other revenues are recorded as services are rendered.
Promotional AllowancesThe retail value of food, beverage, admissions and other complimentary items furnished to customers without charge is included in gross revenue and then deducted as promotional allowances. The estimated costs of providing such promotional allowances have been included in casino expenses for the years ended December 31, 2017, 2016, and 2015, and are as follows:
2017 | 2016 | 2015 | ||||||||||
Food and beverage |
$ | 7,989,205 | $ | 7,741,972 | 8,080,458 | |||||||
Admissions and other |
4,255,556 | 4,210,739 | 4,792,750 | |||||||||
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$ | 12,244,761 | $ | 11,952,711 | $ | 12,873,208 | |||||||
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Advertising Expenses Advertising expenses are expensed as incurred and included in other operating expenses. Advertising expense for the years ended December 31, 2017, 2016, and 2015 was $7,183,307, $6,335,420, and $7,107,142, respectively.
Income TaxesThe Joint Venture is taxed as a partnership for federal and state income tax purposes. The financial statements do not include a provision for income taxes, since any income or losses allocated to the Members are reportable for income tax purposes by each Member. The Joint Ventures income tax returns and the amount of allocable income are subject to examination by federal and state taxing authorities. If an examination results in a change to the Joint Ventures income, the Members taxes may also change.
Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
- 8 -
Gaming and Admission TaxesThe gaming tax payable to the State of Illinois is based on annual graduated rates ranging from 15% to 50% of adjusted gross receipts (as defined). In addition to the gaming tax, an admission tax of $3 per person entering the casino is assessed on the Joint Venture. Taxes are payable throughout the year in accordance with the schedule below:
Adjusted Gross Receipts | Tax Rate | |||||||||
$ | | $ | 25,000,000 | 15.0 | % | |||||
25,000,001 | 50,000,000 | 22.5 | ||||||||
50,000,001 | 75,000,000 | 27.5 | ||||||||
75,000,001 | 100,000,000 | 32.5 | ||||||||
100,000,001 | 150,000,000 | 37.5 | ||||||||
150,000,001 | 200,000,000 | 45.0 | ||||||||
200,000,001 | And above | 50.0 |
Gaming and admission taxes were approximately $55.47 million, $53.18 million, and $56.88 million for the years ended December 31, 2017, 2016, and 2015, respectively, and are included in casino expenses in the accompanying statements of income.
3. | PROPERTY AND EQUIPMENT |
A summary of property and equipment as of December 31, 2017 and 2016 is as follows:
2017 | 2016 | |||||||
Buildings |
$ | 46,911,579 | $ | 45,771,410 | ||||
Riverboat |
52,699,655 | 52,699,655 | ||||||
Leasehold improvements |
5,020,886 | 5,020,886 | ||||||
Furniture, fixtures and equipment, gaming equipment, and automotve |
64,525,064 | 60,753,063 | ||||||
Construction in progress |
243,132 | | ||||||
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Total property and equipment |
169,400,316 | 164,245,014 | ||||||
Less accumulated depreciation and amortization |
(131,575,635 | ) | (126,461,486 | ) | ||||
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Property and equipment - net |
$ | 37,824,681 | $ | 37,783,528 | ||||
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- 9 -
4. | ACCRUED LIABILITIES |
A summary of accrued liabilities at December 31, 2017 and 2016 is as follows:
2017 | 2016 | |||||||
Accrued commitment to Grand Victoria Foundation and County of Kane |
$ | 7,375,091 | $ | 7,144,360 | ||||
Accrued payroll, vacation, benefits and related taxes |
3,359,094 | 3,491,674 | ||||||
Reserve for progressive jackpots |
1,579,416 | 1,456,860 | ||||||
Accrued taxes |
823,076 | 1,070,559 | ||||||
Reserve for slot club redemptions |
885,164 | 1,003,395 | ||||||
Unredeemed chip/token liability |
676,504 | 737,841 | ||||||
Accrued ground lease |
250,000 | 250,000 | ||||||
Other |
1,031,482 | 1,083,877 | ||||||
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Total accrued liabilities |
$ | 15,979,827 | $ | 16,238,566 | ||||
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5. | LEASES |
In accordance with the Ground Lease and Development Agreement, as amended, (the Agreement), the Joint Venture leased land for a term of 10 years, commencing with the initial issuance of the IGB license. The initial lease term expired in October 2004 and the third successive five-year term was renewed on October 31, 2014 until October 31, 2019. Effective January 1, 2015 the terms Basic Rent and Percentage Rent used throughout the Lease Agreement shall mean and be construed as the lesser of the Basic Rent or the Percentage Rent. Therefore, the annual lease payment is equal to the lesser of (i) $1,000,000 or (ii) 3% of the Joint Ventures annual net operating income, as defined in the Agreement.
The Joint Venture leases certain electronic gaming devices from various approved manufacturers. The leases range from $15 to $100 per day and allow for either party to terminate the lease within 60 days of execution.
Rent expense for all operating leases for the years ended December 31, 2017, 2016, and 2015 was $3,203,675, $3,261,861, and $3,274,092, respectively.
6. | COMMITMENTS AND CONTINGENCIES |
The Joint Venture has agreed to contribute to both the County of Kane and the Grand Victoria Foundation, a foundation established for the benefit of educational, environmental and economic development programs in the region. The total commitment is equal to 20% of adjusted net operating income, as defined. This commitment must be paid within 120 days of the end of the fiscal year for which it has been calculated. Combined donation expense for the County of Kane and the Grand Victoria Foundation for the years ended December 31, 2017, 2016, and 2015 was $7,375,091, $7,144,360, and $8,547,078, respectively.
- 10 -
7. | RELATED-PARTY TRANSACTIONS |
The Joint Venture employs the legal services of a firm that is affiliated with a member of the Joint Ventures Executive Committee.
The Joint Venture is reimbursed for certain allocated employment expenses for a key Joint Venture employee that provides oversight and management to an affiliated entity of the Managing Partner.
Under Amendment No. 1 to the Amended and Restated Joint Venture Agreement dated April 25, 2005, the Managing Partner is allowed to receive one percent (1%) of adjusted gross receipts, as defined by the Illinois Riverboat Gambling Act, as a preferred distribution. The preferred distribution for the years ended December 31, 2017, 2016, and 2015 was $1,684,312, $1,636,342, and $1,715,020, respectively.
8. | RETIREMENT PLANS |
The Joint Venture maintains a defined contribution plan under section 401(k) of the Internal Revenue Code for all employees with certain eligibility requirement as outlined in the plan document. The plan allows employees to defer a portion of their income on a pretax basis. The Joint Venture matches a portion of employee contributions in accordance with a safe harbor provision adopted in January 2007. Matching contribution expenses for the years ended December 31, 2017, 2016, and 2015 were $880,758, $903,698, and $885,127, respectively.
On January 1, 2010, the Joint Venture started a nonqualified deferred retirement plan for certain key employees. The plan allows these employees to defer a portion of their salary and/or bonus on a pre-tax basis. The Joint Venture voluntarily matches a portion of employee contributions up to a maximum amount on a three-year cliff vesting schedule. Matching contribution expenses for the years ended December 31, 2017, 2016, and 2015 were $0, $56,000, and $59,900, respectively. Subsequently, on January 1, 2016, the Joint Venture started a new deferred retirement plan for certain key employees. Under the new plan the Joint Venture voluntarily matches a portion of employee contributions up to a maximum amount on each pay period. The matching contribution expense for the year ended December 31, 2017 was $64,976.
9. | LETTER OF CREDIT |
The Joint Venture has an irrevocable and unconditional letter of credit of $300,000, bearing no interest, for the benefit of Zurich American Insurance Company and American Zurich Insurance Company (collectively, Zurich). The letter of credit is being maintained as security for the reimbursement of deductibles or retention payments made on the Joint Ventures behalf by Zurich. The letter of credit renews annually on September 30, and is extended for one year, unless prior written notice is provided to Zurich. The letter of credit is secured with a certificate of deposit equal to the amount of the letter of credit.
- 11 -
10. | RECENT ACCOUNTING PRONOUNCEMENTS |
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. This ASU clarifies the principles for recognizing revenue and to develop a common revenue standard for US GAAP and IFRS. The amendments in this guidance state 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. This new guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. In August 2015, FASB issued new guidance to defer the effective date of the pronouncement to annual reporting periods beginning after December 15, 2018. An entity should apply the amendments in this update retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application. The Joint Venture is currently evaluating the standard to understand the overall impact it will have on the financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends the FASB Accounting Standards Codification. The objective of the update is to improve financial reporting by increasing transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. It is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the amendments is permitted for all entities. The Joint Venture is currently evaluating the impact that this amended guidance will have on its financial statements and related disclosures.
11. | SUBSEQUENT EVENTS |
No events have occurred after December 31, 2017, but before February 13, 2018, the date the financial statements were available to be issued that require consideration as adjustments to or disclosures in the financial statements.
* * * * * *
- 12 -
Elgin Riverboat ResortRiverboat Casino
Unaudited Condensed Financial Statements as of June 30, 2018 and December 31, 2017 and for the six-months ended June 30, 2018 and June 30, 2017
ELGIN RIVERBOAT RESORTRIVERBOAT CASINO
TABLE OF CONTENTS
Page | ||||
UNAUDITED CONDENSED FINANCIAL STATEMENTS AS OF JUNE 30, 2018 AND DECEMBER 31, 2017 AND FOR THE SIX-MONTHS ENDED JUNE 30, 2018 AND 2017: |
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Balance Sheets |
3 | |||
Statements of Income |
4 | |||
Statements of Cash Flows |
5 | |||
Notes to Unaudited Condensed Financial Statements |
611 |
ELGIN RIVERBOAT RESORTRIVERBOAT CASINO
UNAUDITED CONDENSED BALANCE SHEETS
AS OF JUNE 30, 2018 AND DECEMBER 31, 2017
June 30, 2018 |
December 31, 2017 |
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ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 28,261,016 | $ | 27,963,886 | ||||
Accounts receivablenet of allowance for doubtful accounts of $23,566 and $15,000, respectively |
124,507 | 17,300 | ||||||
Inventories |
393,419 | 258,541 | ||||||
Prepaid expenses |
1,157,219 | 876,361 | ||||||
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|
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Total current assets |
29,936,161 | 29,116,088 | ||||||
PROPERTY AND EQUIPMENTNet |
35,226,964 | 37,824,681 | ||||||
OTHER ASSETS |
960,885 | 1,106,901 | ||||||
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TOTAL |
$ | 66,124,010 | $ | 68,047,670 | ||||
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|
|||||
LIABILITIES AND PARTNERS EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Accounts payable |
$ | 914,482 | $ | 1,485,540 | ||||
Accrued liabilities |
19,280,933 | 15,979,827 | ||||||
Due to affiliates |
130,158 | 126,293 | ||||||
|
|
|
|
|||||
Total current liabilities |
20,325,573 | 17,591,660 | ||||||
OTHER LIABILITIES |
867,905 | 1,013,920 | ||||||
|
|
|
|
|||||
Total liabilities |
21,193,478 | 18,605,580 | ||||||
|
|
|
|
|||||
COMMITMENTS AND CONTINGENCIES (Notes 5 and 6) |
||||||||
PARTNERS EQUITY |
44,930,532 | 49,442,090 | ||||||
|
|
|
|
|||||
TOTAL |
$ | 66,124,010 | $ | 68,047,670 | ||||
|
|
|
|
See notes to unaudited condensed financial statements.
- 3 -
ELGIN RIVERBOAT RESORTRIVERBOAT CASINO
UNAUDITED CONDENSED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2017
June 30, 2018 |
June 30, 2017 |
|||||||
REVENUES: |
||||||||
Casino |
$ | 76,892,541 | $ | 80,455,807 | ||||
Food and beverage |
5,985,267 | 6,231,929 | ||||||
Admissions and other |
2,665,900 | 2,877,425 | ||||||
|
|
|
|
|||||
Total revenues |
85,543,708 | 89,565,161 | ||||||
Less casino promotional allowances |
(5,296,233 | ) | (5,811,126 | ) | ||||
|
|
|
|
|||||
Revenuesnet |
80,247,475 | 83,754,035 | ||||||
|
|
|
|
|||||
OPERATING EXPENSES: |
||||||||
Casino |
41,971,574 | 45,549,816 | ||||||
Food and beverage |
2,393,496 | 2,221,234 | ||||||
General and administrative |
6,266,419 | 5,534,473 | ||||||
Charitable donations |
4,596,876 | 4,668,843 | ||||||
Depreciation and amortization |
3,692,946 | 3,550,677 | ||||||
Preferred distribution |
807,569 | 863,799 | ||||||
Other operating expenses |
5,733,195 | 6,649,421 | ||||||
|
|
|
|
|||||
Total operating expenses |
65,462,075 | 69,038,263 | ||||||
|
|
|
|
|||||
OPERATING INCOME |
14,785,400 | 14,715,772 | ||||||
OTHER INCOMEnet |
3,042 | 1,886 | ||||||
|
|
|
|
|||||
NET INCOME |
$ | 14,788,442 | $ | 14,717,658 | ||||
|
|
|
|
See notes to unaudited condensed financial statements.
- 4 -
ELGIN RIVERBOAT RESORTRIVERBOAT CASINO
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2017
June 30, 2018 |
June 30, 2017 |
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 14,788,442 | $ | 14,717,658 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
3,692,946 | 3,550,677 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
(107,207 | ) | (15,346 | ) | ||||
Inventories |
(134,878 | ) | 17,432 | |||||
Prepaid expenses |
(280,858 | ) | (382,215 | ) | ||||
Other assets |
146,016 | (135,016 | ) | |||||
Accounts payable |
(218,710 | ) | (1,364,503 | ) | ||||
Accrued liabilities |
3,301,106 | 2,007,385 | ||||||
Due to affiliates |
3,865 | 17,715 | ||||||
Other liabilities |
(146,015 | ) | 130,016 | |||||
|
|
|
|
|||||
Net cash provided by operating activities |
21,044,707 | 18,543,803 | ||||||
|
|
|
|
|||||
CASH FLOWS USED IN INVESTING ACTIVITIES: |
||||||||
Capital expenditures |
(1,427,417 | ) | (852,824 | ) | ||||
Construction in progress |
(20,160 | ) | (1,333,883 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(1,447,577 | ) | (2,186,707 | ) | ||||
|
|
|
|
|||||
CASH FLOWS USED IN FINANCING ACTIVITYDistributions to partners |
(19,300,000 | ) | (14,200,000 | ) | ||||
|
|
|
|
|||||
Net cash used in financing activities |
(19,300,000 | ) | (14,200,000 | ) | ||||
|
|
|
|
|||||
NET INCREASE IN CASH AND CASH EQUIVALENTS |
297,130 | 2,157,096 | ||||||
CASH AND CASH EQUIVALENTS: |
||||||||
Beginning of period |
27,963,886 | 27,817,301 | ||||||
|
|
|
|
|||||
End of period |
$ | 28,261,016 | $ | 29,974,397 | ||||
|
|
|
|
|||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCapital expenditures incurred but not yet paid |
$ | 263,292 | $ | 1,333,883 | ||||
|
|
|
|
See notes to unaudited condensed financial statements.
- 5 -
ELGIN RIVERBOAT RESORTRIVERBOAT CASINO
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 2018 AND DECEMBER 31, 2017 AND FOR SIX-MONTHS ENDED JUNE 30, 2018 AND 2017
1. | BUSINESS |
Elgin Riverboat ResortRiverboat Casino (the Joint Venture), doing business as the Grand Victoria Casino, was formed in December 1992, as a partnership under the Joint Venture Agreement between RBG, L.P. (Managing Partner) and Nevada Landing Partnership, in which each owns a 50% interest.
The Joint Venture is licensed by the Illinois Gaming Board (IGB) to own and operate a riverboat casino on the Fox River in Elgin, Illinois. The original license was issued on October 6, 1994. On October 7, 2016, the IGB approved the renewal of the license for another term of four years.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of PresentationThe condensed financial statements are unaudited, but in our opinion include all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the results for the interim period. The interim financial results are not necessarily indicative of results that may be expected for any other interim period or the fiscal year.
Cash and Cash EquivalentsCash and cash equivalents include investments and interest-bearing instruments with an original maturity of three months or less. Such investments are recorded at the lower of cost or market value. The Joint Venture maintains cash balances at a financial institution in excess of federally insured limits. Included in cash and cash equivalents as of June 30, 2018 and December 31, 2017 is $300,000 of restricted cash related to the certificate of deposit used as collateral (refer to Note 9).
InventoriesInventories, consisting of food, beverage and gift shop items, are stated at the lower of cost or market value. Cost is determined by the first-in, first-out method.
Property and EquipmentProperty and equipment are stated at cost. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:
Buildings |
39 years | |||
Riverboat |
20 years | |||
Leasehold improvements |
15 years | |||
Furniture, fixtures and equipment, and gaming equipment |
25 years |
Long-Lived AssetsThe Joint Venture reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. If undiscounted expected future cash flows are less than the carrying value, an impairment loss would be recognized equal to an amount by which the carrying value exceeds the fair value of the asset. The factors considered by
- 6 -
the Joint Venture in performing this assessment include current operating results, trends and prospects, as well as the effect of obsolescence, demand, competition and other economic factors. No impairment of long-lived assets was recognized by the Joint Venture for the six-months ended June 30, 2018 or 2017.
Reserve for Players ClubThe Joint Ventures players club allows customers to earn points based on the volume of slot play. Points are redeemable for cash back incentives. The Joint Venture has accrued a liability for all points earned but not yet redeemed by active slot club members.
Revenue RecognitionCasino revenues are recorded as the net win from gaming activities, which is the difference between gaming wins and losses, with liabilities recognized for funds deposited by customers before gaming play occurs and for chips in the customers possession. Jackpots, other than the incremental amount of progressive jackpots, are recognized at the time they are won by customers. The Joint Venture accrues the incremental amount of progressive jackpots as the progressive machine is played and the progressive jackpot amount increases, with a corresponding reduction of casino revenue. Food, beverage, admissions and other revenues are recorded as services are rendered.
Promotional AllowancesThe retail value of food, beverage, admissions and other complimentary items furnished to customers without charge is included in gross revenue and then deducted as promotional allowances. The estimated costs of providing such promotional allowances have been included in casino expenses, and are as follows for the six-months ended June 30:
2018 | 2017 | |||||||
Food and beverage |
$ | 3,619,653 | $ | 3,881,652 | ||||
Admissions and other |
1,821,765 | 2,026,224 | ||||||
|
|
|
|
|||||
$ | 5,441,418 | $ | 5,907,876 | |||||
|
|
|
|
Advertising ExpensesAdvertising expenses are expensed as incurred and included in general and administrative. Advertising expenses for the six-months ended June 30, 2018 and 2017 were $2,322,970 and $3,500,180, respectively.
Income TaxesThe Joint Venture is taxed as a partnership for federal and state income tax purposes. The unaudited condensed financial statements do not include a provision for income taxes, since any income or losses allocated to the Members are reportable for income tax purposes by each Member. The Joint Ventures income tax returns and the amount of allocable income are subject to examination by federal and state taxing authorities. If an examination results in a change to the Joint Ventures income, the Members taxes may also change.
Use of EstimatesThe preparation of unaudited condensed financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
- 7 -
Gaming and Admission TaxesThe gaming tax payable to the State of Illinois is based on annual graduated rates ranging from 15% to 50% of adjusted gross receipts (as defined). In addition to the gaming tax, an admission tax of $3 per person entering the casino is assessed on the Joint Venture. Taxes are payable throughout the year in accordance with the schedule below:
Adjusted Gross Receipts | Tax Rate | |||||||||
$ | | $ | 25,000,000 | 15.0 | % | |||||
25,000,001 | 50,000,000 | 22.5 | ||||||||
50,000,001 | 75,000,000 | 27.5 | ||||||||
75,000,001 | 100,000,000 | 32.5 | ||||||||
100,000,001 | 150,000,000 | 37.5 | ||||||||
150,000,001 | 200,000,000 | 45.0 | ||||||||
200,000,001 | And above | 50.0 |
In the state of Illinois, gaming taxes are based on graduated rates. The Joint Venture records gaming tax expense at the Joint Ventures estimated effective gaming tax rate on an annual basis, considering estimated taxable gaming revenue and the applicable rates. Such estimates are adjusted each interim period.
Gaming and admission taxes were approximately $26.01 million and $28.63 million for the six-months ended June 30, 2018 and 2017, respectively, and are included in casino expenses in the accompanying unaudited condensed statements of income.
3. | PROPERTY AND EQUIPMENT |
A summary of property and equipment as of June 30, 2018 and December 31, 2017 is as follows:
June 30, 2018 |
December 31, 2017 |
|||||||
Buildings |
$ | 46,911,579 | $ | 46,911,579 | ||||
Riverboat |
52,699,655 | 52,699,655 | ||||||
Leasehold improvements |
5,020,886 | 5,020,886 | ||||||
Furniture, fixtures and equipment, gaming equipment, and automotive |
65,600,133 | 64,525,064 | ||||||
Construction in progress |
263,292 | 243,132 | ||||||
|
|
|
|
|||||
Total property and equipment |
170,495,545 | 169,400,316 | ||||||
Less accumulated depreciation and amortization |
(135,268,581 | ) | (131,575,635 | ) | ||||
|
|
|
|
|||||
Property and equipmentnet |
$ | 35,226,964 | $ | 37,824,681 | ||||
|
|
|
|
- 8 -
4. | ACCRUED LIABILITIES |
A summary of accrued liabilities as of June 30, 2018 and December 31, 2017 is as follows:
June 30, 2018 |
December 31, 2017 |
|||||||
Deferred gaming taxes |
$ | 6,061,901 | $ | | ||||
Accrued commitment to Grand Victoria Foundation and County of Kane |
4,553,320 | 7,375,091 | ||||||
Accrued payroll, vacation, benefits and related taxes |
3,061,043 | 3,359,094 | ||||||
Reserve for progressive jackpots |
1,632,383 | 1,579,416 | ||||||
Reserve for slot club redemptions |
814,093 | 885,164 | ||||||
Unredeemed chip/token liability |
663,047 | 676,504 | ||||||
Accrued taxes |
853,445 | 823,076 | ||||||
Accrued ground lease |
250,000 | 250,000 | ||||||
Other |
1,391,701 | 1,031,482 | ||||||
|
|
|
|
|||||
Total accrued liabilities |
$ | 19,280,933 | $ | 15,979,827 | ||||
|
|
|
|
5. | LEASES |
In accordance with the Ground Lease and Development Agreement, as amended, (the Agreement), the Joint Venture leased land for a term of 10 years, commencing with the initial issuance of the IGB license. The initial lease term expired in October 2004 and the third successive five-year term was renewed on October 31, 2014 until October 31, 2019. Effective January 1, 2015 the terms Basic Rent and Percentage Rent used throughout the Agreement shall mean and be construed as the lesser of the Basic Rent or the Percentage Rent. Therefore, the annual lease payment is equal to the lesser of (i) $1,000,000, as increased by the CPI index adjustment, or (ii) 3% of the Joint Ventures annual net operating income, as defined in the Agreement.
The Joint Venture leases certain electronic gaming devices from various approved manufacturers. The leases range from $15 to $100 per day and allow for either party to terminate the lease within 60 days of execution.
Rent expense for all operating leases for the six-months ended June 30, 2018 and 2017, was $1,506,934 and $1,591,543, respectively.
6. | COMMITMENTS AND CONTINGENCIES |
The Joint Venture has agreed to contribute to both the County of Kane and the Grand Victoria Foundation, a foundation established for the benefit of educational, environmental and economic development programs in the region. The total commitment is equal to 20% of adjusted net operating income, as defined in the agreements. This commitment must be paid within 120 days of the end of the fiscal year for which it has been calculated. Combined donation expense for the County of Kane and the Grand Victoria Foundation for the six-months ended June 30, 2018 and 2017, was $4,553,320 and $4,633,972, respectively.
- 9 -
7. | RELATED-PARTY TRANSACTIONS |
The Joint Venture employs the legal services of a firm that is affiliated with a member of the Joint Ventures Executive Committee. Related party legal expense for the six-months ended June 30, 2018 and 2017 was $662,508 and 148,762, respectively. These expenses are included in general and administrative expense.
The Joint Venture is reimbursed for certain allocated employment expenses for a key Joint Venture employee that provides oversight and management to an affiliated entity of the Managing Partner.
Under Amendment No. 1 to the Amended and Restated Joint Venture Agreement dated April 25, 2005, the Managing Partner is allowed to receive one percent (1%) of adjusted gross receipts, as defined by the Illinois Riverboat Gambling Act, as a preferred distribution. The preferred distribution for the six-months ended June 30, 2018 and 2017 was $807,569 and $863,799, respectively.
8. | RETIREMENT PLANS |
The Joint Venture maintains a defined contribution plan under section 401(k) of the Internal Revenue Code for all employees with certain eligibility requirement as outlined in the plan document. The plan allows employees to defer a portion of their income on a pretax basis. The Joint Venture matches a portion of employee contributions in accordance with a safe harbor provision adopted in January 2007. Matching contribution expenses for the six-months ended June 30, 2018 and 2017, were $446,655 and $443,274, respectively.
On January 1, 2016, the Joint Venture started a new deferred retirement plan for certain key employees. Under the new plan the Joint Venture voluntarily matches a portion of employee contribution up to a maximum amount on each pay period. The matching contribution expenses for the six-months ended June 30, 2018 and 2017 were $37,440 and $39,280, respectively.
9. | LETTER OF CREDIT |
The Joint Venture has an irrevocable and unconditional letter of credit of $300,000, bearing no interest, for the benefit of Zurich American Insurance Company and American Zurich Insurance Company (collectively, Zurich). The letter of credit is being maintained as security for the reimbursement of deductibles or retention payments made on the Joint Ventures behalf by Zurich. The letter of credit renews annually on September 30, and is extended for one year, unless prior written notice is provided to Zurich. The letter of credit is secured with the certificate of deposit held with Zurich.
10. | RECENT ACCOUNTING PRONOUNCEMENTS |
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. This ASU clarifies the principles for recognizing revenue and to develop a common revenue standard for US GAAP and IFRS. The amendments in this guidance state 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. This new guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and
- 10 -
uncertainty of revenue that is recognized. In August 2015, FASB issued new guidance to defer the effective date of the pronouncement to annual reporting periods beginning after December 15, 2018. An entity should apply the amendments in this update retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application. The Joint Venture is currently evaluating the standard to understand the overall impact it will have on the unaudited condensed financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends the FASB Accounting Standards Codification. The objective of the update is to improve financial reporting by increasing transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. It is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early application of the amendments is permitted for all entities. The Joint Venture is currently evaluating the impact that this amended guidance will have on the unaudited condensed financial statements and related disclosures.
11. | SUBSEQUENT EVENTS |
On August 7, 2018, Eldorado Resorts, Inc., a Nevada corporation (Eldorado) completed its previously announced acquisition of the Joint Venture (the Acquisition). The Acquisition was made pursuant to the Interest Purchase Agreement (the Purchase Agreement), dated as of April 15, 2018. As a result of the Acquisition, the Joint Venture will be an indirect wholly-owned subsidiary of Eldorado. Eldorado purchased the Joint Venture for $327.5 million, subject to a post-closing working capital adjustment.
In preparing these unaudited condensed financial statements, the Joint Venture has evaluated events and transactions for potential recognition or disclosure through August 24, 2018, the date the Joint Ventures unaudited condensed financial statements were available to be issued.
* * * * * *
- 11 -