Bally's Corp - FORM 8-K/A - EX-99.3 - February 3, 2021

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EX-99.4 - EX-99.4 - Bally's Corpex994-kcvproformas63020.htm
EX-99.2 - EX-99.2 - Bally's Corpex992-2019kcvfs.htm
EX-99.1 - EX-99.1 - Bally's Corpex991-q2x2019kcvfs.htm
EX-23.2 - EX-23.2 - Bally's Corpex232-consentofey18.htm
EX-23.1 - EX-23.1 - Bally's Corpex231-consentofey19.htm
8-K/A - 8-K/A - Bally's Corpbaly-20200702.htm
Exhibit 99.3















COMBINED FINANCIAL STATEMENTS

IOC - Kansas City, Inc., d/b/a Isle of Capri Kansas City and
Rainbow Casino-Vicksburg Partnership, L.P. d/b/a Lady Luck Casino Vicksburg
As of and for the Year Ended December 31, 2018
With Report of Independent Auditors


































IOC - KANSAS CITY, INC. AND
RAINBOW CASINO VICKSBURG PARTNERSHIP, L.P.


TABLE OF CONTENTS
Report of Independent Auditors1
Combined Financial Statements:
  Combined Balance Sheet2
  Combined Statement of Income3
  Combined Statement of Changes in Net Parent Investment 4
  Combined Statement of Cash Flows5
  Notes to Combined Financial Statements6




































REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of
Caesars Entertainment, Inc.

We have audited the accompanying combined financial statements of IOC - Kansas City, Inc. and Rainbow Casino Vicksburg Partnership, L.P., which comprise the combined balance sheet as of December 31, 2018, and the related combined statements of income, changes in net parent investment and cash flows for the year then ended, and the related notes to the combined financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of 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 auditor’s 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 entity’s 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 entity’s 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 the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of IOC - Kansas City, Inc. and Rainbow Casino Vicksburg Partnership, L.P., at December 31, 2018, and the combined results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

February 2, 2021




1



IOC - KANSAS CITY, INC. AND
RAINBOW CASINO VICKSBURG PARTNERSHIP, L.P.
COMBINED BALANCE SHEET
For the Years Ended December 31,
(dollars in thousands)

ASSETS2018
Current assets:
Cash and cash equivalents$5,759 
Accounts receivable, net274 
Inventories217 
Prepaid expenses and other assets2,667 
Total current assets8,917 
Property and equipment, net69,891 
Gaming licenses and other intangibles, net93,088 
Goodwill48,429 
Right-of-use assets— 
Other assets, net3,978 
Total assets$224,303 
LIABILITIES AND NET PARENT INVESTMENT
Current liabilities:
Accounts payable$785 
Accrued property, gaming and other taxes1,126 
Accrued payroll and related1,354 
Accrued income taxes payable139 
Short-term lease obligation— 
Accrued other liabilities1,251 
Total current liabilities4,655 
Deferred income taxes24,037 
Intercompany debt58,000 
Long-term lease obligation— 
Other long term liabilities118 
Total liabilities86,810 
Net parent investment137,493 
Total liabilities and net parent investment$224,303 
See accompanying notes to combined financial statements.

2




IOC - KANSAS CITY, INC. AND
RAINBOW CASINO VICKSBURG PARTNERSHIP, L.P.
COMBINED STATEMENT OF INCOME
For the Years Ended December 31,
(dollars in thousands)
2018
Revenue:
Casino$81,803 
Food and beverage4,444 
Hotel1,361 
Other1,611 
Total revenues89,219 
Operating expenses:
Casino32,268 
Food and beverage4,266 
Hotel532 
Other228 
Marketing and promotions6,451 
General and administrative21,185 
Management fee1,804 
Gain on disposal of property and equipment(8)
Impairment Charges9,815 
Depreciation and amortization7,177 
Total operating expenses83,718 
Operating income5,501 
Interest expenses on intercompany note(5,220)
Income before income taxes281 
Benefit for income taxes1,058 
Net income$1,339 
See accompanying notes to combined financial statements.










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IOC - KANSAS CITY, INC. AND
RAINBOW CASINO VICKSBURG PARTNERSHIP, L.P.
COMBINED STATEMENT OF CHANGES IN NET PARENT INVESTMENTS
(dollars in thousands)

Balance at December 31, 2017$147,285 
Net income1,339 
Net distributions to parent(11,131)
Balance at December 31, 2018$137,493 
See accompanying notes to combined financial statements.





































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IOC - KANSAS CITY, INC. AND
RAINBOW CASINO VICKSBURG PARTNERSHIP, L.P.
COMBINED STATEMENT OF CASH FLOWS
For the Years Ended December 31,
(dollars in thousands)
2018
Cash flows from operating activities:
Net income$1,339 
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization7,177 
Impairment9,815 
Stock compensation expense31 
Gain on disposal of property and equipment(8)
Deferred income taxes(2,914)
Other21 
Changes in operating assets and liabilities:
Accounts receivable123 
Inventory137 
Prepaid expenses and other assets236 
Income taxes payable27 
Accounts payable and accrued expenses(548)
Net cash provided by operating activities15,436 
Cash flows from investing activities:
Purchase of property and equipment(4,750)
Proceeds from sale of property and equipment12 
Net cash used in investing activities(4,738)
Cash flows from financing activities:
Net distribution to parent(11,133)
Net used in financing activities(11,133)
Change in cash and cash equivalents(435)
Cash, cash equivalents at beginning of year6,194 
Cash, cash equivalents at end of year$5,759 
Non-cash investing and financing activities
Capital expenditures included in accounts payable$96 
Contribution of capital asset to parent$25 
See accompanying notes to combined financial statements.

5

IOC - KANSAS CITY, INC. AND
RAINBOW CASINO-VICKSBURG PARTNERSHIP, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS



Note 1. Organization and Basis of Presentation

The accompanying combined financial statements include the accounts and transactions of IOC – Kansas City, Inc. (“Kansas City”) and Rainbow Casino Vicksburg Partnership L.P. (“Vicksburg”), collectively, the Companies, all of which are wholly-owned subsidiaries of Caesars Entertainment, Inc. (“Caesars” or “Parent”). Each of the entities comprising the Companies own and operate gaming, hospitality and entertainment businesses.

The accompanying combined financial statements as of and for the year ended December 31, 2018 include the accounts and transactions of the Companies and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The results for the period reflect all adjustments, which are of a normal recurring nature, that management considers necessary for a fair presentation of operating results.

All intercompany transactions and accounts between the Companies’ have been eliminated in the presentation of the combined financial statements. The accompanying combined financial statements have been prepared from separate records maintained by the Parent and may not necessarily be indicative of the conditions that would have existed or the results of operations if the Companies had been operated as entities unaffiliated with the Parent. Portions of certain expenses represent allocations from the Parent. See Note 7, “Related-Party Transactions.”
Kansas City consists of a dockside casino and two dining venues. It is the closest gaming facility to downtown Kansas City, Missouri. Kansas City attracts customers primarily from the Kansas City metropolitan area.

Vicksburg is located off Interstate 20 and Highway 61 in western Mississippi, approximately 50 miles west of Jackson, Mississippi, and consists of a dockside casino, a race and sportsbook, a hotel and four dining venues. Vicksburg’s customers are drawn primarily from within a 60-mile radius of the property.

On July 11, 2019, the Parent entered into a definitive agreement to sell the real property and outstanding equity interests relating to Kansas City and Vicksburg to Bally's Corporation ("Bally's") for approximately $230.0 million, subject to a customary working capital adjustment. The sale occurred on July 1, 2020.

Note 2. Summary of Significant Accounting Policies

Use of Estimates—The preparation of combined financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the combined financial statements, and (iii) the reported amounts of revenues and expenses during the reporting period. Estimates used by management included, among other things, the useful lives for depreciable assets, the allowance for doubtful accounts receivable, income tax provisions, the evaluation of the future realization of deferred tax assets, cash flows in assessing the recoverability of long-lived assets, asset impairments, goodwill, and other intangible assets, and contingencies and litigation. Actual results could differ from those estimates.

Cash and Cash Equivalents—The Companies consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents includes cash maintained for gaming operations.

Inventories—Inventories are stated at the lower of average cost, using a first-in, first-out basis, or net realizable value. Inventory consists primarily of uniforms, food and beverage and retail merchandise.
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IOC - KANSAS CITY, INC. AND
RAINBOW CASINO-VICKSBURG PARTNERSHIP, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS



Property and Equipment—Property and equipment are stated at cost or fair value if acquired in a business combination. Depreciation is computed using the straight-line method over the estimated useful life of the asset or the term of the lease, whichever is less. Costs of major improvements are capitalized, while costs of normal repairs and maintenance are charged to expense as incurred. Gains or losses on dispositions of property and equipment are included in operating income.

Depreciation is computed using the straight-line method over the following estimated useful lives of the assets:

Land improvements.............................................10 to 20 years
Buildings and improvements...............................10 to 40 years
Furniture, fixtures and equipment.......................3-15 years
Riverboat.............................................................5 to 25 years

The Companies evaluate their property and equipment and other long-lived assets to be held and used for impairment whenever indicators of impairment exist. The Companies compare the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then an impairment charge is recorded. All recognized impairment losses are recorded as operating expenses.  
Goodwill and Other Intangible Assets - Goodwill represents the excess of purchase price over the fair market value of net assets acquired in business combinations and has been allocated to the applicable reporting unit. Each of the Companies are considered separate reporting units. Goodwill and indefinite-lived intangible assets are reviewed for impairment at least annually and between annual test dates in certain circumstances. A $9.8 million impairment was recorded as a result of the annual impairment review for goodwill and indefinite-lived intangible assets at Vicksburg.
Indefinite-lived intangible assets consist primarily of expenditures associated with obtaining racing and gaming licenses. Indefinite-lived intangible assets are not subject to amortization but are subject to an annual impairment test. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess amount. No impairments were recognized in 2018.
Finite-lived intangible assets consist of trade names and player loyalty programs acquired in business combinations. Amortization is completed using the straight-line method over the estimated useful life of the asset. The Companies evaluate for impairment whenever indicators of impairment exist. When indicators are noted, the Companies then compare estimated undiscounted future cash flows to the carrying value of the asset. If the undiscounted future cash flows exceed the carrying value, no impairment is recorded. No impairment charges were recorded during the year ended December 31, 2018.

Outstanding Chip Liability—The Companies recognize the impact on gaming revenues on an annual basis to reflect an estimate of the change in the value of outstanding chips that are not expected to be redeemed. This estimate is determined by measuring the difference between the total value of chips placed in service less the value of chips under the Companies’ control. This measurement is performed on an annual basis utilizing a methodology in which a consistent formula is applied to estimate the percentage value of chips not in custody that are not expected to be redeemed. In addition to the formula, certain judgments are made with regard to various denominations and souvenir chips. The outstanding chip liability is included in accrued other liabilities on the combined balance sheets.

Loyalty Program—The Companies offer programs whereby participating customers can accumulate points for wagering that can be redeemed for credits for free play on slot machines, food and beverage,
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IOC - KANSAS CITY, INC. AND
RAINBOW CASINO-VICKSBURG PARTNERSHIP, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS


merchandise and in limited situations, cash. The incentives earned by customers under these programs are based on previous revenue transactions and represent separate performance obligations. Points earned, less estimated breakage, are recorded as a reduction of casino revenues at the retail value of such benefits owed to the customer and recognized as departmental revenue based on where such points are redeemed, upon fulfillment of the performance obligation. The loyalty program liability represents a deferral of revenue until redemption occurs, which is typically less than one year.

For purposes of allocating the transaction price in a wagering contract between the wagering performance obligation and the obligation associated with the loyalty points earned, the Companies allocate an amount to the loyalty point liability based on the stand-alone selling price of the points earned, which is determined by the value of a point that can be redeemed for a non-gaming good or service. An amount is allocated to the gaming wager performance obligation using the residual approach as the stand-alone price for wagers is highly variable and no set established price exists for such wagers. The allocated revenue for gaming wagers is recognized when the wagers occur as all such wagers settle immediately. The loyalty point liability is deferred and recognized as revenue when the customer redeems the points for the non-gaming good or service at the time such goods or services are delivered to the customer.

Casino Revenue—The Companies recognize as casino revenue the net win from gaming activities, which is the difference between gaming wins and losses, not the total amount wagered. Progressive jackpots are accrued and charged to revenue at the time the obligation to pay the jackpot is established. Gaming revenues are recognized net of certain cash and free play incentives.

Gaming wager contracts involve two performance obligations for those customers earning points under the Companies’ loyalty program and a single performance obligation for customers who don’t participate in the program. The Companies apply a practical expedient by accounting for its gaming contracts on a portfolio basis as such wagers have similar characteristics and the Companies reasonably expects the effects on the financial statements of applying the revenue recognition guidance to the portfolio to not differ materially from that which would result if applying the guidance to an individual wagering contract.

Complimentaries—The Companies offer discretionary coupons and other discretionary complimentaries to customers outside of the loyalty program. The retail value of complimentary food, beverage and other services provided to customers, including loyalty point redemptions, is recognized in revenues when the goods or services are transferred to the customer. Complimentaries provided by third parties at the discretion and under the control of the Companies is recorded as an expense when incurred. The Companies’ revenues included complimentaries and loyalty point redemptions of $4.3 million for the year ended December 31, 2018.

Non-gaming Revenue—Hotel, food and beverage and other operating revenues are recognized as services are performed. The transaction price for hotel, food and beverage contracts is the net amount collected from the customer for such goods and services. Food and beverage services have been determined to be separate, stand-alone performance obligations and the transaction price for such contracts is recorded as revenue as the good or service is transferred when the delivery is made for the food and beverage. The Companies also provide goods and services that may include multiple performance obligations, such as packages, for which revenues are allocated on a pro rata basis based on each service's stand-alone selling price.

Advertising—Advertising costs are expensed the first time the related advertisement appears. Total advertising costs, including direct mail costs, totaled $2.7 million for the year ended December 31, 2018.
Income Taxes –The Companies, as either a wholly-owned corporate subsidiary or as disregarded entities (single member LLCs) of Caesars, file U.S. and state income tax returns as part of the Caesars consolidated group. The Parent is ultimately responsible for the taxes payable of the combined Companies. For these financial statements, the federal and state tax was computed as if each entity filed
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IOC - KANSAS CITY, INC. AND
RAINBOW CASINO-VICKSBURG PARTNERSHIP, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS


on a separate, stand-alone basis, only in the jurisdiction in which the property is located. Each Company was treated as a taxable C corporation, and the tax expense and associated payable were recorded on each separate entity’s books. 

Income taxes are accounted for in accordance with the provisions of Accounting Standards Codification (“ASC”) 740, Income Taxes (ASC 740). ASC 740 requires the recognition of deferred income tax liabilities and deferred income tax assets for the difference between the book basis and tax basis of assets and liabilities. Recognizable future tax benefits are subject to a valuation allowance, unless such tax benefits are determined to be more likely than not realizable. The Companies have recorded valuation allowances related to certain temporary differences that would create capital losses upon settlement. The Companies recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.

Under the applicable accounting standards, the Companies may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The accounting standards also provide guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and disclosure requirements for uncertain tax positions. The Companies had recorded no liabilities associated with uncertain tax positions at December 31, 2018.

Allowance for Doubtful Accounts—The Companies reserve for receivables that may not be collected. Methodologies for estimating the allowance for doubtful accounts range from specific reserves to various percentages applied to aged receivables. Historical collection rates are considered, as are customer relationships, in determining specific reserves.
Recently Issued Accounting Pronouncements to Be Implemented in Future Periods

In February 2016 (as amended through December 2018), the FASB issued ASU No. 2016-02 codified as Accounting Standards Codification (“ASC”) 842, Leases, (“ASC 842”) which addressed 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 were 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 control the use of a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. ASC 842 required a transition adoption election using either 1) a modified retrospective approach with periods prior to the adoption date being recast or 2) a prospective adoption approach with a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption date with prior periods continuing to be reported under current lease accounting guidance. 

The Companies adopted ASC 842 on January 1, 2019 using the prospective adoption approach, and therefore, comparative periods continue to be reported under current lease accounting guidance consistent with previously issued financial statements. The Companies elected the package of practical expedients permitted under the transition guidance within ASC 842, which among other things, allowed the Companies to carry forward the historical lease identification, lease classification and treatment of initial direct costs for leases entered into prior to January 1, 2019. The Companies also made an accounting policy election to not record short-term leases with an initial term of 12 months or less on the balance sheet for all classes of underlying assets. The Companies also elected to not adopt the hindsight practical expedient for determining lease terms.

The operating leases, in which the Company is the lessee, will be recorded on the balance sheet as a ROU asset with a corresponding lease liability. The lease liability will be remeasured each reporting period
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IOC - KANSAS CITY, INC. AND
RAINBOW CASINO-VICKSBURG PARTNERSHIP, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS


with a corresponding change to the ROU asset. Upon adoption of ASC 842, the Companies will record a ROU asset and related operating lease liability totaling $40.2 million with no impact on the statement of income or statement of cash flows.

Note 3. Property and Equipment, Net

Property and equipment, net consists of the following at December 31, 2018 (amounts are in thousands):

Property and equipment:
Land and land improvements$17,319 
Buildings and other leasehold improvements35,736 
Furniture, fixtures and equipment14,214 
Riverboat13,280 
Construction in progress554 
Total property and equipment81,103 
Less accumulated depreciation and amortization(11,212)
Property and equipment, net$69,891 

The Companies recorded depreciation expense of $7.1 million during the year ended December 31, 2018.
Note 4. Intangible Assets, Net and Other Long-Term Assets
Intangible assets, net, include the following amounts at December 31, 2018 (dollar amounts are in thousands):

Useful Life
Goodwill$48,429 Indefinite
Gaming licenses$82,000 Indefinite
Trade names10,950 Indefinite
Player loyalty programs311 
3 years
Subtotal93,261 
Accumulated amortization player loyalty programs(173)
Total gaming licenses and other intangible assets, net$93,088 
Goodwill represents the excess of the purchase price of acquiring Kansas City and Vicksburg over the fair market value of the net assets acquired.
Gaming licenses represent intangible assets acquired from the purchase of a gaming entity located in a gaming jurisdiction where competition is limited, such as when only a limited number of gaming operators are allowed to operate in the jurisdiction. These gaming license rights are not subject to amortization as the Companies have determined that they have indefinite useful lives.
Amortization expense with respect to player loyalty programs for the year ended December 31, 2018 totaled $0.1 million, which is included in depreciation and amortization in the combined statement of operations.  



10

IOC - KANSAS CITY, INC. AND
RAINBOW CASINO-VICKSBURG PARTNERSHIP, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS



Note 5. Income Taxes
The components of the Companies’ provision for income taxes for the year ended December 31, 2018 (amounts are in thousands) are:

Current:
Federal$1,118 
State738 
Total current1,750 
Deferred:
Federal(766)
State(2,148)
Total deferred(2,914)
Income tax benefit$(1,058)

The Companies made no income tax payments to the Parent during the year ended December 31, 2018.

The following is a reconciliation of the statutory federal income tax at 21% to the Companies’ actual income tax expense/(benefit) for the year ended December 31, 2018 (amounts are in thousands:

Federal statutory rate$59 
Change in state tax rate(1,215)
State and local taxes101 
Tax credits(40)
Other37 
Income tax benefit$(1,058)

A valuation allowance is recognized if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax asset will not be realized. Management must analyze all available positive and negative evidence regarding realization of the deferred tax assets and make an assessment of the likelihood of sufficient future taxable income. The Companies continues to provide for a valuation allowance against state deferred taxes associated with Vicksburg long-lived assets and net federal and state deferred tax assets associated with non-operating land, the sale of which could result in capital losses that can only be offset against capital gains.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The significant components of the Company’s deferred taxes at December 31, 2018 (amounts are in thousands) are:

11

IOC - KANSAS CITY, INC. AND
RAINBOW CASINO-VICKSBURG PARTNERSHIP, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS


Deferred tax assets:
Accrued expenses$1,280 
Other24 
Subtotal1,304 
Deferred tax liabilities:
Identified intangibles(20,093)
Fixed assets(2,883)
Other(47)
Subtotal(23,023)
Valuation allowance(2,318)
Net deferred tax liabilities$(24,037)

As of December 31, 2018, 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 Companies recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.
With few exceptions, the Company is no longer subject to U.S. federal or state and local tax examinations by tax authorities for years before 2017.

Note 6. Employee Benefit Plan

The Companies participate in a 401(k) plan sponsored by Caesars covering substantially all of the Companies’ employees. The Companies’ contribution expense related to this plan was $0.1 million for the year ended December 31, 2018. This plan allows for an employer contribution up to 50 percent of the first six percent of each participating employee’s contribution, subject to statutory and certain other limits.

Note 7. Related Party Transactions    

Net parent investment—Net parent investments primarily arise from cash transfers between the Companies and Caesars related to casino operations, stock compensation and property and equipment transfers.

Intercompany debt—Vicksburg has a $58.0 million revolving note with the Parent that bears interest, payable monthly, at the fixed rate of 9% per annum. The related credit agreement has a termination date of June 1, 2020, and all amounts outstanding under the note are payable on that date. Interest expense on the note was $5.2 million for the year ended December 31, 2018. The debt was forgiven by the Parent in June 2020.

Overhead charges and management fees—The Companies have shared services agreements with the Parent. Under the agreements, the Companies are charged a fixed overhead rate to cover information systems, marketing, e-commerce and other corporate activities. The Companies expensed $2.2 million in overhead charges during the year ended December 31, 2018, which is included in general and administrative expense in the combined Statement of Income. In addition, under the agreements, Caesars provides certain management, administrative and corporate services to the Companies in exchange for a fee. The Companies expensed $1.8 million for shared services during the year ended December 31, 2018, which was included in management fees in the combined statements of operations.

Insurance— Caesars and certain of its subsidiaries, including Kansas City and Vicksburg, have established a captive insurance company, Capri Insurance Companies (the “Captive”). The Captive underwrites the self-insured portion of the workers’ compensation and general liability claims and
12

IOC - KANSAS CITY, INC. AND
RAINBOW CASINO-VICKSBURG PARTNERSHIP, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS


charges an annual insurance premium to the subsidiaries for first layer claims exposure up to the certain stop loss amounts. Kansas City and Vicksburg paid the Captive $0.2 million related to premiums for the year ended December 31, 2018 which is included in general and administrative expense in the Statement of Income.

Note 8. Commitments and Contingencies

Litigation—The Companies are engaged in various litigation matters. Although the ultimate liability of this litigation and these claims cannot be determined at this time, the Companies believe there will not be a material adverse effect on the Companies’ financial position or results of operations.

Operating Leases—The Companies have various operating leases for equipment. Rent expense for operating leases was $4,345 during the year ended December 31, 2018. Future minimum payments under non-cancelable operating leases with initial terms of one year or more consisted:

Year ending December 31,
2019$3,058 
20203,057 
20213,055 
20223,054 
20233,054 
Thereafter70,243 
$85,521 

Note 9. Subsequent Event

In preparing these financial statements, the Companies evaluated events and transactions for potential recognition or disclosure through February 2, 2021, the date the Companies’ financial statements were available to be issued.
In January 2020, an outbreak of a new strain of coronavirus (“COVID-19”) was identified and has since spread throughout much of the world, including the United States. All of Caesars casino properties, including Kansas City and Vicksburg, were temporarily closed beginning in the latter half of March 2020 due to orders issued by various state government agencies in connection with the COVID-19 pandemic. As a result of these closures, the COVID-19 pandemic has had an adverse effect on the Companies’ business, financial condition and results of operations. Caesars continued to pay its full-time employees through April 10, 2020, including tips and tokes. Effective April 11, 2020, Caesars furloughed approximately 90% of its employees, implemented salary reductions and committed to continue to provide benefits to its employees through July 31, 2020. The extent of the ongoing and future effects of the COVID-19 pandemic on the Companies’ business and the casino resort industry generally is uncertain, but the Companies expect that it will continue to have a significant impact on its business, results of operations and financial condition. The extent and duration of the impact of COVID-19 will ultimately depend on future developments, including but not limited to, the duration and severity of the outbreak, the length of time that the Companies remain closed, the Companies’ abilities to adapt to new operating procedures upon re-opening of its casinos, the impact on consumer demand and discretionary spending, the length of time it takes for demand to return and the Companies’ abilities to adjust its cost structures for the duration of the outbreak’s impact on its operations.




13

IOC - KANSAS CITY, INC. AND
RAINBOW CASINO-VICKSBURG PARTNERSHIP, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS


Vicksburg resumed operations on May 21, 2020 and implemented the Mississippi Gaming Commission’s regulations that limit the number of guests to no greater that 50% of the property’s maximum occupancy. Kansas City resumed operations on June 1, 2020 and implemented Missouri’s procedures that limit gaming capacity to 50% of prior levels with proper social distancing regulations in place as directed by Missouri's Governor.
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Bally's Corp Reports