8-K
Bally's Corp (BALY)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 8-K
________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 6, 2020
________________________
Twin River Worldwide Holdings, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 001-38850 | 20-0904604 | |||
|---|---|---|---|---|---|
| (State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) | |||
| 100 Westminster Street | Providence, | RI | 02903 | ||
| (Address of principal executive offices) | (Zip Code) |
(401) 475-8474
(Registrant’s telephone number, including area code)
________________________
Not Applicable
(Former name or former address, if changed since last report.)
Securities registered pursuant to Section 12 (b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered |
|---|---|---|
| Common stock, $0.01 par value | TRWH | New York Stock Exchange |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☒
Item 2.02 Results of Operations and Financial Condition.
On October 6, 2020, Twin River Worldwide Holdings, Inc. (the “Company”) commenced an offering (the “Offering”) of $125 million aggregate principal amount of its 6.750% senior notes due 2027 (the “New Notes”) in a private offering. The New Notes will be issued under the indenture, dated as of May 10, 2019, as an additional issuance of the Company’s existing $400 million in aggregate principal amount of 6.750% senior notes due 2027 (the “Initial Notes”). The New Notes, other than with respect to the date of issuance and issue price, will be identical to the Initial Notes.
On October 6, 2020, the Company issued a press release announcing the Offering and the preliminary estimated financial results of the Company for the nine months ended September 30, 2020, which is attached hereto as Exhibit 99.1.
In connection with the Offering, the Company provided potential investors with a preliminary offering memorandum dated October 6, 2020 (the “Offering Memorandum”). The Company is furnishing the attached Exhibit 99.2 to disclose summary unaudited pro forma condensed combined financial data which was included in the Offering Memorandum. Since not all of the information contained in the Offering Memorandum is included therein, certain cross references and defined terms may not appear in Exhibit 99.2.
This report does not constitute an offer to sell or the solicitation of an offer to buy the New Notes or an offer, solicitation or sale of the New Notes in any jurisdiction in which such offering, solicitation or sale would be unlawful. The New Notes have not been registered under the Securities Act of 1933, and may not be offered or sold absent registration or an applicable exemption from registration requirements.
Item 7.01. Regulation FD Disclosure.
See “Item 2.02. Results of Operation and Financial Condition” above.
The Company is furnishing Exhibits 99.3 and 99.4, and will incorporate such information by reference into the Offering Memorandum.
The information contained in Item 7.01 of this Current Report on Form 8-K, including Exhibits 99.1, 99.2, 99.3, and 99.4, is being furnished and is not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, or incorporated by reference into any filing, except as shall be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits.
(d)Exhibits.
__________________________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| TWIN RIVER WORLDWIDE HOLDINGS, INC. | |
|---|---|
| By: | /s/ Stephen H. Capp |
| Name: | Stephen H. Capp |
| Title: | Executive Vice President and <br>Chief Financial Officer |
Date: October 6, 2020
Document
TWIN RIVER LAUNCHES SENIOR NOTES OFFERING; AND ANNOUNCES PRELIMINARY OPERATING RESULTS FOR THE THIRD QUARTER 2020
PROVIDENCE, R.I. – October 6, 2020 – Twin River Worldwide Holdings, Inc. (NYSE: TRWH) (“Twin River” or the “Company”) today announced that it intends to offer in a private offering, subject to market conditions, $125 million in aggregate principal amount of 6.750% senior unsecured notes due 2027 (the “New Notes”). The New Notes would constitute an additional issuance of Twin River’s existing 6.750% senior notes due 2027 and would be issued under the indenture dated as of May 10, 2019, pursuant to which Twin River previously issued $400 million in aggregate principal amount of notes due 2027. Immediately after giving effect to the proposed issuance of New Notes, the Company would have $525 million in aggregate principal amount of notes due 2027 outstanding.
Twin River intends to use the net proceeds of this offering for general corporate purposes, which could include, in addition to funding operations, acquisitions and other transactions.
The offering of the New Notes has not been registered under the Securities Act of 1933 or any other applicable securities laws and the New Notes may not be offered, sold, pledged or otherwise transferred within the United States or to or for the account of any U.S. person, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act or any other applicable securities laws. This press release does not constitute an offer to sell or the solicitation of an offer to buy the New Notes, nor shall there be any sale of the New Notes in any jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
Preliminary Third Quarter Operating Results
The following third quarter operating results are preliminary estimates based on the latest information available and are subject to change as the Company completes its quarterly closing procedures. For the three months ended September 30, 2020, the Company currently expects:
–consolidated revenues will range from $100 million to $130 million; and
–consolidated Adjusted EBITDA will range from $30 million to $40 million.
The Company expects to be cash flow positive for the third quarter of 2020 (excluding the acquisition of Casino KC and Casino Vicksburg), and ended the quarter with liquidity in excess of $360.0 million inclusive of availability under its revolving credit facility. The Company anticipates reporting final third quarter results in late October or early November 2020. While carrying out quarterly closing procedures, the Company may identify items that would require it to make adjustments to the preliminary estimates of its operating results set forth above. As a result, the Company’s actual operating results could be outside of the ranges set forth above and such differences could be material.
About Twin River
Twin River owns and manages nine casinos, two in Rhode Island, two in Mississippi, one in Delaware, one in Missouri and three casinos as well as a horse racetrack that has 13 authorized OTB licenses in Colorado. Twin River’s properties include Twin River Casino Hotel (Lincoln, RI), Tiverton Casino Hotel Tiverton, RI), Hard Rock Hotel & Casino (Biloxi, MS), Casino Vicksburg (formerly Lady Luck Casino Vicksburg in Vicksburg, MS), Dover Downs Hotel & Casino (Dover, DE), Casino KC (formerly Isle of Capri Casino in Kansas City, MO), Golden Gates Casino (Black Hawk, CO), Golden Gulch Casino (Black Hawk, CO), Mardi Gras Casino (Black Hawk, CO), and Arapahoe Park racetrack (Aurora, CO). Twin River’s casinos range in size from 603 slots and 8 electronic table games to properties with over 4,100 slots, approximately 111 table games, and 36 stadium gaming positions, along with hotel and resort amenities.
Forward Looking Statements
The statements in this press release that are not historical facts are forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause the stated or expected results to be materially different from those anticipated. These risk and uncertainties include, among others, Twin River’s ability to close the offering and uncertainty surrounding the ongoing COVID-19 pandemic, including uncertainty regarding its extent, duration and impact, on Twin River’s business. For further discussion of factors that could materially affect the outcome of forward-looking statements and other risks and uncertainties, see “Risk Factors” in Twin River’s Annual Report on Form 10‐K for the fiscal year ended December 31, 2019, as filed with the Securities and Exchange Commission (“SEC”) on March 13, 2020, and the Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2020 and June 30, 2020, as filed with the SEC on May 14, 2020 and August 13, 2020, respectively. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Unless required by law, Twin River expressly disclaims any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in its views or expectations, to conform them to actual results or otherwise. You are cautioned not to place undue reliance on these forward-looking statements.
Reconciliation of Non-GAAP Measures
The Company has included preliminary estimates of ranges for Adjusted EBITDA, a non-GAAP financial measure, in this press release.
"Adjusted EBITDA" is earnings, or loss for the Company before interest expense, net of interest income, (benefit) provision for income taxes, depreciation and amortization, non-operating income, acquisition, integration and restructuring expense, goodwill and asset impairment, share-based compensation, professional and advisory fees associated with capital return program, CARES Act credit, credit agreement amendment expenses, gain on insurance recoveries, and certain other gains or losses.
Management has historically used Adjusted EBITDA when evaluating operating performance because the Company believes that the inclusion or exclusion of certain recurring and non-recurring items is necessary to provide a full understanding of the Company’s core operating results and as a means to evaluate period-to-period performance. Management also believes that Adjusted EBITDA is a measure that is widely used for evaluating operating performance of companies in the Company’s industry and a principal basis for valuing resort and gaming companies like the Company. Management of the Company believes that while certain items excluded from Adjusted EBITDA may be recurring in nature and should not be disregarded in evaluating the Company’s earnings performance, it is useful to exclude such items when comparing current performance to prior periods because these items can vary significantly depending on specific underlying transactions or events that may not be comparable between the periods presented or they may not relate specifically to current operating trends or be indicative of future results. Adjusted EBITDA should not be construed as an alternative to GAAP net income as an indicator of the Company’s performance. In addition, Adjusted EBITDA as used by the Company may not be defined in the same manner as other companies in the Company’s industry, and, as a result, may not be comparable to similarly titled non-GAAP financial measures of other companies.
Net income is the most closely comparable GAAP measure to Adjusted EBITDA, but the Company is unable to present net income at this time without unreasonable effort or expense given that, among other things, the Company is in the process of its quarterly closing procedures.
| Investor Contact | Media Contact |
|---|---|
| Steve Capp | Liz Cohen |
| Executive Vice President and Chief Financial Officer | Kekst CNC |
| 401-475-8564 | 212-521-4845 |
| InvestorRelations@twinriver.com | Liz.Cohen@kekstcnc.com |
Document
Exhibit 99.2
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The KC-Vicksburg Acquisition closed on July 1, 2020, resulting in Twin River acquiring all of the outstanding equity securities of Casino KC and Casino Vicksburg for an aggregate purchase price of $230 million in cash, subject to certain customary post-closing adjustments. The following summary unaudited pro forma condensed combined financial information has been prepared for illustrative purposes only and is not necessarily indicative of what the combined company’s financial position or results of operations actually would have been had the KC-Vicksburg Acquisition been completed as of the dates indicated. In addition, the summary unaudited pro forma condensed combined financial information does not purport to project the future financial position or results of operations of the combined company. Future results may vary significantly from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors” beginning on page 25 of this offering memorandum and “Risk Factors” included in our annual report on Form 10-K for the fiscal year ended December 31, 2019 and our quarterly report on Form 10-Q for the quarter ended June 30, 2020. The following summary unaudited pro forma condensed combined financial information should be read in conjunction with “Summary Historical Consolidated Financial Data of Twin River” included elsewhere in this offering memorandum and the Unaudited Pro Forma Combined Financial Information of Twin River and Casino KC and Casino Vicksburg incorporated herein by reference.
The following summary unaudited pro forma condensed combined statement of income data for the six and twelve months ended June 30, 2020 and for the year ended December 31, 2019 gives effect to the KC-Vicksburg Acquisition as if it was completed on January 1, 2019.
Additionally, the summary unaudited pro forma as adjusted data do not reflect the impact of any pending acquisitions. As described under “—Pending Acquisitions,” on April 24, 2020, we entered into a definite agreement to acquire the Eldorado Shreveport Resort and Casino in Shreveport, Louisiana and the MontBleu Resort Casino & Spa in Lake Tahoe, Nevada from Eldorado Resorts for a total consideration of $155 million, subject to post-closing adjustments. On the same date we also entered into a binding agreement to acquire certain assets of Bally’s Atlantic City Hotel & Casino and the property on which it operates for an aggregate purchase price of $25 million, subject to post-closing adjustments. Finally, on September 30, 2020, we entered into a definite agreement to acquire the Jumer’s Casino & Hotel in Rock Island, Illinois from Delaware North for an aggregate purchase price of $120 million, subject to post-closing adjustments. See “—Pending Acquisitions” and “Use of Proceeds.”
| Pro Forma | Pro Forma | Pro Forma | |||||
|---|---|---|---|---|---|---|---|
| Six Months Ended | Twelve Months Ended | Year Ended | |||||
| In millions | June 30, 2020 | June 30, 2020 | December 31, 2019 | ||||
| Revenue | $ | 163.2 | $ | 463.8 | $ | 607.4 | |
| Operating costs and expenses | 182.3 | 420.1 | 467.2 | ||||
| (Loss) Income from operations | (19.1) | 43.7 | 140.1 | ||||
| Interest expense, net of interest income | (31.6) | (58.3) | (49.1) | ||||
| Loss on modification and extinguishment of debt | — | (0.2) | (1.7) | ||||
| Other income | — | 0.0 | 0.2 | ||||
| (Loss) Income before provision for income taxes | (50.7) | (14.8) | 89.5 | ||||
| Provision for income taxes | (18.2) | (6.7) | 23.9 | ||||
| Net income | $ | (32.5) | $ | (8.1) | $ | 65.6 | |
| Pro Forma Adjusted EBITDA(1) | $ | 17.5 | $ | 107.0 | $ | 195.5 |
(1) Our non-GAAP measure Pro Forma Adjusted EBITDA is calculated from pro forma net income by excluding depreciation, amortization, interest expense, net of interest income, provision for income taxes, non-operating income, acquisition, integration and restructuring expenses, goodwill and asset impairment expense, share-based compensation expense, CARES Act credit, professional and advisory fees associated with capital return program, loss on extinguishment and modification of debt, gain on insurance recoveries, credit agreement amendment expenses, and other non-recurring expenses and incomes.
| Pro Forma | Pro Forma | Pro Forma | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Six Months Ended | Twelve Months Ended | Year Ended | |||||||
| In millions | June 30, 2020 | June 30, 2020 | December 31, 2019 | ||||||
| Net (loss) income | $ | (8.1) | $ | 65.6 | |||||
| Interest expense, net of interest income | 31.6 | 58.3 | 49.1 | ||||||
| (Benefit) Provision for income taxes | (18.2) | (6.7) | 23.9 | ||||||
| Depreciation and amortization | 20.2 | 39.6 | 36.5 | ||||||
| Non-operating income | — | (0.0) | (0.2) | ||||||
| Acquisition, integration and restructuring expense (1) | 3.4 | 5.7 | 10.9 | ||||||
| Goodwill and Asset Impairment | 8.6 | 8.6 | — | ||||||
| Share-based compensation | 7.7 | 9.7 | 3.8 | ||||||
| CARES Act credit (2) | (2.9) | (2.9) | — | ||||||
| Professional and advisory fees associated with capital return program(3) | (0.0) | 1.8 | 3.5 | ||||||
| Loss on extinguishment and modification of debt | — | 0.2 | 1.7 | ||||||
| Gain on insurance recoveries(4) | (1.0) | (2.2) | (1.2) | ||||||
| Existing credit agreement amendment expenses | 0.4 | 1.5 | 1.2 | ||||||
| Other(5) | 0.4 | 1.5 | 0.6 | ||||||
| Adjusted EBITDA(6) | 17.5 | $ | 107.0 | $ | 195.5 |
All values are in US Dollars.
(1) Acquisition, integration and restructuring expense includes legal and financial advisory costs related to the merger with Dover Downs and related one-time costs of becoming a public company, costs associated with the acquisitions of Black Hawk, Kansas City, Vicksburg, Bally’s Atlantic City, Shreveport and MontBleu. Restructuring costs primarily reflect severance charges related to the Dover Downs integration.
(2) Amount represents the Employee Retention Credit under the CARES Act which provides the Company with a refundable tax credit of 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.
(3) Professional and advisory fees incurred related to a capital return program under which the Company executed a stock repurchase program and paid quarterly dividends.
(4) Gain related to insurance recovery proceeds received for a damaged roof at the Company’s Arapahoe Park racetrack.
(5) Other includes the following non-recurring items for the applicable period: (i) expenses incurred associated with the Rhode Island State Police investigation into a tenant in the Lincoln property and a former employee of the Company, (ii) a pension audit payment representing an adjustment to a charge for out-of-period unpaid contributions, inclusive of estimated interest and penalties, to one of the Company’s multi-employer pension plans, (iii) expenses incurred associated with the campaign attempting to create an open bid process for the Rhode Island Lottery Contract, (iv) non-routine legal expenses incurred in connection with certain litigation matters (net of insurance reimbursements), (v) costs incurred in connection with the implementation of a new human resources information system, (vi) storm-related repair expenses, net of insurance recoveries, associated with damage from Hurricane Nate at Hard Rock Biloxi, and (vii) legal and financial expenses associated with the Company’s review of strategic alternatives.
(6) See reconciliation of our reported net income to adjusted EBITDA included under “— Summary Historical Consolidated Financial Data of Twin River.”
| Pro Forma as of and for twelve months ended June 30, 2020 | ||
|---|---|---|
| In millions | ||
| Pro Forma as Adjusted Data (1) | ||
| Cash and cash equivalents | $ | 227.4 |
| Total net debt (2) | $ | 869.6 |
| Total net secured debt (2) | $ | 344.6 |
| Cash interest expense (3) | $ | 68.9 |
(1) Po Forma As Adjusted Data, in addition to reflecting the KC-Vicksburg Acquisition as described above, also reflects the anticipated impact of this offering and the use of proceeds therefrom, as if they were completed on January 1, 2019, in the case of statement of income data, and on June 30, 2020, in the case of balance sheet data. It does not does not reflect the impact of any pending acquisitions, or the use of cash and cash equivalents to finance those acquisitions. See “—Pending Acquisitions” and “Use of Proceeds.”
(2) Total net debt, a non-GAAP measure, represents total debt net of cash and cash equivalents. Total net secured debt, a non-GAAP measure, represents total secured debt net of cash and cash equivalents.
(3) Cash interest expense, a non-GAAP financial measure, includes cash paid for interest expense and excludes amortization of deferred financing costs as well as the implied interest charges on outstanding balances of deferred purchase consideration.
Document
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 Three and Six Months Ended June 30, 2020
IOC - KANSAS CITY, INC. AND
RAINBOW CASINO VICKSBURG PARTNERSHIP, L.P.
| TABLE OF CONTENTS | |
|---|---|
| Combined Financial Statements: | |
| Combined Balance Sheet | 1 |
| Combined Statement of Income | 2 |
| Combined Statement of Changes in Net Parent Investment | 3 |
| Combined Statement of Cash Flows | 4 |
| Notes to Combined Financial Statements | 5 |
IOC - KANSAS CITY, INC. AND
RAINBOW CASINO VICKSBURG PARTNERSHIP, L.P.
COMBINED BALANCE SHEET
(dollars in thousands)
| ASSETS | June 30, 2020 | |
|---|---|---|
| Current assets: | ||
| Cash and cash equivalents | $ | 4,362 |
| Accounts receivable, net | 594 | |
| Inventories | 164 | |
| Prepaid expenses and other assets | 709 | |
| Total current assets | 5,829 | |
| Property and equipment, net | 65,062 | |
| Gaming licenses and other intangibles, net | 92,950 | |
| Goodwill | 48,429 | |
| Right-of-use assets | 37,425 | |
| Other assets, net | 3,967 | |
| Total assets | $ | 253,662 |
| LIABILITIES AND NET PARENT INVESTMENT | ||
| Current liabilities: | ||
| Accounts payable | $ | 615 |
| Accrued property, gaming and other taxes | 918 | |
| Accrued payroll and related | 695 | |
| Accrued income taxes payable | 347 | |
| Short-term lease obligation | 2,291 | |
| Accrued other liabilities | 1,193 | |
| Total current liabilities | 6,059 | |
| Deferred income taxes | 18,400 | |
| Long-term lease obligation | 34,370 | |
| Other long term liabilities | 306 | |
| Total liabilities | 59,135 | |
| Net parent investment | 194,527 | |
| Total liabilities and net parent investment | $ | 253,662 |
| See accompanying notes to combined financial statements. |
IOC - KANSAS CITY, INC. AND
RAINBOW CASINO VICKSBURG PARTNERSHIP, L.P.
COMBINED STATEMENT OF INCOME
(dollars in thousands)
| For the three months ended June 30, 2020 | For the six months ended June 30, 2020 | |||
|---|---|---|---|---|
| Revenue: | ||||
| Casino | $ | 6,400 | $ | 23,231 |
| Food and beverage | 234 | 1,033 | ||
| Hotel | 103 | 397 | ||
| Other | 115 | 469 | ||
| Total revenues | 6,852 | 25,130 | ||
| Operating expenses: | ||||
| Casino | 2,382 | 9,048 | ||
| Food and beverage | 295 | 1,171 | ||
| Hotel | 63 | 193 | ||
| Other | 12 | 81 | ||
| Marketing and promotions | 264 | 1,144 | ||
| General and administrative | 4,199 | 9,068 | ||
| Management fee | 125 | 514 | ||
| Loss on disposal of property and equipment | — | — | ||
| Depreciation and amortization | 1,432 | 2,913 | ||
| Total operating expenses | 8,772 | 24,132 | ||
| Operating (loss) income | (1,920) | 998 | ||
| Interest expenses on intercompany note | (429) | (1,730) | ||
| (Loss) income before income taxes | (2,349) | (732) | ||
| (Benefit) provision for income taxes | (34) | 322 | ||
| Net loss | $ | (2,315) | $ | (1,054) |
| See accompanying notes to combined financial statements. |
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, 2019 | $ | 134,291 |
|---|---|---|
| Net income | 1,261 | |
| Net distributions to parent | (3,973) | |
| Balance at March 31, 2020 | 131,579 | |
| Net loss | (2,315) | |
| Net contribution from parent | 65,263 | |
| Balance at June 30, 2020 | $ | 194,527 |
| See accompanying notes to combined financial statements. |
IOC - KANSAS CITY, INC. AND
RAINBOW CASINO VICKSBURG PARTNERSHIP, L.P.
COMBINED STATEMENT OF CASH FLOWS
(dollars in thousands)
| For the six months ended June 30, 2020 | ||
|---|---|---|
| Cash flows from operating activities: | ||
| Net loss | $ | (1,054) |
| Adjustments to reconcile net loss to net cash | ||
| provided by operating activities | ||
| Depreciation and amortization | 2,913 | |
| Stock compensation expense | 1 | |
| Loss on disposal of property and equipment | — | |
| Deferred income taxes | (6,911) | |
| Other | — | |
| Changes in operating assets and liabilities | ||
| Accounts receivable | (236) | |
| Inventory | 7 | |
| Prepaid expenses and other assets | (291) | |
| Income taxes payable | 258 | |
| Accounts payable and accrued expenses | 1,231 | |
| Net cash used in operating activities | (4,082) | |
| Cash flows from investing activities: | ||
| Purchase of property and equipment, net of reimbursements | (278) | |
| Proceeds from sale of property and equipment | — | |
| Net cash used in investing activities | (278) | |
| Cash flows from financing activities: | ||
| Net contribution to parent | 3,289 | |
| Net provided by financing activities | 3,289 | |
| Change in cash and cash equivalents | (1,071) | |
| Cash, cash equivalents at beginning of year | 5,433 | |
| Cash, cash equivalents at end of year | $ | 4,362 |
| Non-cash investing and financing activities | ||
| Capital expenditures included in accounts payable | $ | 5 |
| Contribution of capital asset to parent | $ | — |
| Settlement of intercompany debt | $ | 58,000 |
| See accompanying notes to combined financial statements. |
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 Lady Luck Casino Vicksburg (“Vicksburg”), collectively, the Companies, all of which are wholly-owned subsidiaries of Eldorado Resorts, Inc. (“Parent” or “ERI”). 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 three and six months ended June 30, 2020 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 ERI 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, ERI entered into a definitive agreement to sell the real property and outstanding equity interests relating to Kansas City and Vicksburg to Twin River Worldwide Holdings, Inc. (“Twin”) for approximately $230.0 million, subject to a customary working capital adjustment. The sale is expected to occur in early July 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.
IOC - KANSAS CITY, INC. AND
RAINBOW CASINO-VICKSBURG PARTNERSHIP, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
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.
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. No impairment was recorded during the three and six months ended June 30, 2020.
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 each reporting units. 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. No impairments were indicated as a result of the annual impairment review for goodwill and indefinite-lived intangible assets in 2019.
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 impairment was recorded during the three and six months ended June 30, 2020.
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 three and six months ended June 30, 2020.
IOC - KANSAS CITY, INC. AND
RAINBOW CASINO-VICKSBURG PARTNERSHIP, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
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, 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 $0.2 million and $0.9 million for the three and six months ended June 30, 2020, respectively.
IOC - KANSAS CITY, INC. AND
RAINBOW CASINO-VICKSBURG PARTNERSHIP, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
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 $0.2 million and $0.4 million for the three and six months ended June 30, 2020, respectively.
Income Taxes –The Companies, as either a wholly-owned corporate subsidiary or as disregarded entities (single member LLCs) of ERI, file U.S. and state income tax returns as part of the ERI consolidated group. The Parent is ultimately responsible for the taxes payable of the combined group. For these financial statements, the federal and state tax was computed as if each entity filed 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. The Companies made no income tax payments to the Parent during the three and six months ended June 30, 2020.
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 have recorded no liabilities associated with uncertain tax positions at June 30, 2020.
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.
IOC - KANSAS CITY, INC. AND
RAINBOW CASINO-VICKSBURG PARTNERSHIP, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 3. Leases
The Companies’ management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset.
Finance and operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date. As the implicit rate is not determinable in most of the Companies’ leases, management uses ERI’s incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Companies will exercise such options. Lease expense for operating leases with minimum lease payments is recognized on a straight-line basis over the expected lease term.
The Companies’ lease arrangements have lease and non-lease components. For leases in which the Companies’ are the lessee, the Companies account for the lease components and non-lease components as a single lease component for all classes of underlying assets. Leases, in which the Companies are the lessor, are substantially all accounted for as operating leases and the lease components and non-lease components are accounted for separately, which is consistent with the Companies’ historical accounting. Leases with an expected or initial term of 12 months or less are not accounted for on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.
The Companies have operating leases for various real estate and equipment. Certain of the Companies’ lease agreements include rental payments based on a percentage of sales over specified contractual amounts, and rental payments are adjusted periodically for inflation and based on usage. The Companies’ leases include options to extend the lease term one month to one year.
Other information related to lease terms and discount rates are as follows as:
| Weighted Average Remaining Lease Term | June 30, 2020 |
|---|---|
| Operating Leases | 26.5 years |
| Weighted Average Discount Rate | |
| Operating Leases^(1)^ | 7.06% |
(1)Upon adoption of the new lease standard, discount rates used for existing operating leases were established on January 1, 2019.
IOC - KANSAS CITY, INC. AND
RAINBOW CASINO-VICKSBURG PARTNERSHIP, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
The components of lease expense are as follows (amounts are in thousands):
| Lease Expense: | For the three months ended June 30, 2020 | For the six months ended June 30, 2020 | ||
|---|---|---|---|---|
| Operating lease expense | $ | 762 | $ | 1,525 |
| Short-term and variable lease expense | 64 | 307 | ||
| Total lease expense | $ | 826 | $ | 1,832 |
Supplemental cash flow information related to leases is as follows for the six months ended June 30, 2020:
| Cash paid for amounts included in the measurement of lease liabilities (amounts are in thousands): | ||
|---|---|---|
| Operating cash flows for operating leases – six months ended June 30, 2020 | $ | — |
In addition to the payments made for operating leases noted above, the Companies paid $0.3 million during the six months ended June 30, 2020 for short-term and variable leases.
Maturities of lease liabilities are summarized as follows (amounts are in thousands):
| Year ending December 31, | ||
|---|---|---|
| Remainder of 2020 | $ | 2,383 |
| 2021 | 3,055 | |
| 2022 | 3,054 | |
| 2023 | 3,054 | |
| 2024 | 3,054 | |
| Thereafter | 67,189 | |
| Total future minimum lease payments | 81,789 | |
| Less: amount representing interest | (45,128) | |
| Present value of future minimum lease payments | 36,661 | |
| Less: current lease obligations | (2,291) | |
| Long-term lease obligations | $ | 34,370 |
IOC - KANSAS CITY, INC. AND
RAINBOW CASINO-VICKSBURG PARTNERSHIP, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 4. Property and Equipment, Net
Property and equipment, net consists of the following (amounts are in thousands):
| Property and equipment: | June 30, 2020 | |
|---|---|---|
| Land and land improvements | $ | 18,752 |
| Buildings and other leasehold improvements | 37,142 | |
| Furniture, fixtures and equipment | 16,162 | |
| Riverboat | 13,295 | |
| Total property and equipment | 85,351 | |
| Less accumulated depreciation and amortization | (20,289) | |
| Property and equipment, net | $ | 65,062 |
The Companies recorded depreciation expense of $1.4 million and $2.9 million during the three and six months ended June 30, 2020, respectively.
Note 5. Intangible Assets, Net and Other Long-Term Assets
Intangible assets, net, include the following amounts (dollar amounts are in thousands):
| June 30, 2020 | Useful Life | ||
|---|---|---|---|
| Goodwill | $ | 48,429 | Indefinite |
| Gaming licenses | $ | 82,000 | Indefinite |
| Trade names | 10,950 | Indefinite | |
| Player loyalty programs | 311 | 3 years | |
| Subtotal | 93,261 | ||
| Accumulated amortization player loyalty programs | (311) | ||
| Total gaming licenses and other intangible assets, net | $ | 92,950 |
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 three and six months ended June 30, 2020 totaled $9 thousand and $35 thousand, respectively, which is included in depreciation and amortization in the combined statements of operations.
IOC - KANSAS CITY, INC. AND
RAINBOW CASINO-VICKSBURG PARTNERSHIP, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
Other assets, net, include the following amounts (amounts are in thousands):
| June 30, 2020 | ||
|---|---|---|
| Non-operating real property | $ | 3,850 |
| Long-term deposits | 101 | |
| Long-term prepaid expenses | 16 | |
| Total other assets, net | $ | 3,967 |
Note 6. Employee Benefit Plan
The Companies participate in a 401(k) plan sponsored by ERI covering substantially all of the Companies’ employees. The Companies’ contribution expense related to this plan was $0.1 million for the six months ended June 30, 2020. There were no material contributions related to this plan during the three months ended June 30, 2020. 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 ERI related to casino operations.
Intercompany debt—Vicksburg had a $58.0 million revolving note with ERI that bore interest, payable monthly, at the fixed rate of 9% per annum. The related credit agreement had a termination date of June 1, 2020, and all amounts outstanding under the note were payable on that date. During the three months ended June 30, 2020, the note was relieved via a non-cash contribution from ERI. Interest expense on the note was $0.4 million and $1.7 million for the three and six months ended June 30, 2020, respectively.
Overhead charges and management fees—The Companies have shared services agreements with ERI. 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 $0.6 million and $1.2 million for the three and six months ended June 30, 2020, respectively, in overhead charges, which is included in general and administrative expense in the combined Statement of Income. In addition, under the agreements, ERI provides certain management, administrative and corporate services to the Companies in exchange for a fee. The Companies expensed $0.1 million and $0.5 million during the three and six months ended June 30, 2020, respectively, for shared services, which was included in management fees in the combined statements of operations.
Insurance—ERI 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 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 and $0.3 million related to premiums for the three and six months ended June 30, 2020, respectively, which is included in general and administrative expense in the Statement of Income.
IOC - KANSAS CITY, INC. AND
RAINBOW CASINO-VICKSBURG PARTNERSHIP, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
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.
Note 9. Subsequent Event
In preparing these financial statements, the Companies evaluated events and transactions for potential recognition or disclosure through October 5, 2020, 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 ERI’s 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. ERI continued to pay its full-time employees through April 10, 2020, including tips and tokes. Effective April 11, 2020, ERI 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.
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.
13
Document
Exhibit 99.4
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements are presented to illustrate the estimated effects of the acquisition (the “Acquisition”) by Twin River Management Group, a Delaware corporation and wholly owned subsidiary of Twin River Worldwide Holdings, Inc., a Delaware corporation (“Twin River” or the “Company”) of all of the outstanding equity securities of each of IOC-Kansas City, Inc. (“IOC-Kansas City”) and Rainbow Casino-Vicksburg Partnership, L.P. (“Rainbow” and, together with IOC-Kansas City, the "Acquired Companies") from Eldorado Resorts, Inc. (“Eldorado”) pursuant to the terms of an Equity Purchase Agreement dated July 10, 2019 by and among Twin River, Eldorado, and various of their affiliates (the “Purchase Agreement”). The Acquisition, which closed on July 1, 2020, resulted in Twin River acquiring all of the outstanding equity securities of the Acquired Companies for an aggregate purchase price of $230 million in cash, subject to certain customary post-closing adjustments. The Acquisition is being accounted for as a business combination using the acquisition method with Twin River as the accounting acquirer in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”). Under this method of accounting the purchase price will be allocated to the Acquired Companies’ assets acquired and liabilities assumed based upon their estimated fair values at the date of consummation of the Acquisition.
The following unaudited pro forma condensed combined balance sheets as of June 30, 2020 and December 31, 2019, and the unaudited pro forma condensed combined statements of income for the six months ended June 30, 2020 and twelve months ended December 31, 2019 (collectively, the “Pro Forma Statements”) have been prepared in compliance with the requirements of Securities and Exchange Commission (“SEC”) Regulation S-X using accounting policies in accordance with U.S. GAAP. The unaudited pro forma condensed combined financial information is based on Twin River’s and the Acquired Companies' historical consolidated financial statements as adjusted to give effect to the Acquisition.
Accounting policies used in the preparation of the Pro Forma Statements are based on the unaudited financial statements of Twin River for the six months ended June 30, 2020 and the audited consolidated financial statements of Twin River for the year ended December 31, 2019.
The pro forma adjustments are based on preliminary estimates and currently available information and assumptions that Twin River management believes are reasonable. The notes to the Pro Forma Statements describe how such adjustments were derived and presented in the Pro Forma Statements. Changes in facts and circumstances or discovery of new information may result in revised estimates. As a result, there may be material adjustments to the Pro Forma Statements. Certain historical Acquired Companies' financial statement caption amounts have been reclassified or combined to conform to Twin River’s presentation and disclosure requirements.
The Pro Forma Statements should be read in conjunction with the unaudited consolidated financial statements and related notes of Twin River and the Acquired Companies as of and for the six months ended June 30, 2020 and audited consolidated financial statements and related notes of Twin River and the Acquired Companies as of and for the year ended December 31, 2019.
The unaudited Pro Forma Statements give effect to the Acquisition as if it had occurred on January 1, 2019, for purposes of the unaudited pro forma condensed combined statements of income for the six months ended June 30, 2020 and year ended December 31, 2019. The unaudited Pro Forma Statements give effect to the Acquisition as if it had occurred on June 30, 2020, for purposes of the unaudited pro forma condensed combined balance sheet. The historical consolidated financial information has been adjusted to give effect to pro forma adjustments that are factually supportable, directly attributable to the Acquisition, and expected to have a continuing impact on the financial statements.
The Pro Forma Statements are presented for illustrative purposes only and may not be indicative of the results of operations that would have occurred if the events reflected therein had been in effect on the dates indicated or the results which may be obtained in the future. In preparing the Pro Forma Statements, no adjustments have been made to reflect the potential operating synergies and administrative cost savings or the costs of integration activities that could result from the combination of Twin River and the Acquired Companies.
The Pro Forma Statements include adjustments to record assets and liabilities of the Acquired Companies at their estimated respective fair values based on available information and to give effect to the financing for the Acquisition. The pro forma adjustments included herein are subject to change depending on changes in the components of assets and liabilities and as additional analyses are performed. The final allocation of the purchase price for the Acquired Companies will be determined
after completion of a thorough analysis to determine the fair value of the Acquired Companies’ tangible and identifiable intangible assets and liabilities as of the date the purchase was completed. Increases or decreases in the estimated fair values of the net assets as compared with the information shown in the Pro Forma Statements may change the amount of the purchase price allocated to goodwill and other assets and liabilities, and may impact the Company’s statement of operations in future periods. Any changes to the Acquired Companies’ equity, including results of operations from June 30, 2020, through the date the Acquisition was completed, will also change the purchase price allocation, which may include the recording of a higher or lower amount of goodwill. The final adjustments may be materially different from the unaudited pro forma adjustments presented herein.
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2020
(in thousands)
| Twin River | Acquired Companies | Pro forma Adjustments | Note 3 | Pro Forma Combined | |||||
|---|---|---|---|---|---|---|---|---|---|
| Assets | |||||||||
| Cash and cash equivalents | $ | 331,083 | $ | 4,362 | $ | (230,000) | (b) | $ | 105,445 |
| Restricted cash | 1,647 | — | — | 1,647 | |||||
| Accounts receivable, net | 11,917 | 594 | — | 12,511 | |||||
| Inventory | 8,994 | 164 | — | 9,158 | |||||
| Prepaid expenses and other assets | 40,265 | 709 | — | 40,974 | |||||
| Total current assets | 393,906 | 5,829 | (230,000) | 169,735 | |||||
| Property and equipment, net | 540,797 | 65,062 | 3,850 | (a) | 601,371 | ||||
| (8,338) | (b) | ||||||||
| Right of use assets, net | 16,823 | 37,425 | (9,143) | (b) | 45,105 | ||||
| Goodwill | 133,082 | 48,429 | 4,358 | (b) | 185,869 | ||||
| Intangible assets, net | 109,862 | 92,950 | 45,610 | (b) | 248,422 | ||||
| Other assets | 5,491 | 3,967 | (3,850) | (a) | 5,608 | ||||
| Total assets | $ | 1,199,961 | $ | 253,662 | $ | (197,513) | $ | 1,256,110 | |
| Liabilities and Shareholders' Equity | |||||||||
| Current portion of long-term debt | $ | 5,750 | $ | — | $ | — | $ | 5,750 | |
| Current portion of lease obligations | 1,046 | 2,291 | (1,098) | (b) | 2,239 | ||||
| Accounts payable | 8,035 | 615 | — | 8,650 | |||||
| Accrued liabilities | 63,843 | 1,193 | 1,960 | (a) | 66,996 | ||||
| Accrued property, gaming and other taxes | — | 918 | (918) | (a) | — | ||||
| Accrued payroll and related | — | 695 | (695) | (a) | — | ||||
| Accrued income taxes payable | — | 347 | (347) | (a) | — | ||||
| Intercompany debt | — | — | — | (b) | — | ||||
| Total current liabilities | 78,674 | 6,059 | (1,098) | 83,635 | |||||
| Lease obligations, net of current portion | 15,781 | 34,370 | 16,279 | (b) | 66,430 | ||||
| Pension benefit obligations | 8,317 | — | — | 8,317 | |||||
| Deferred tax liability | 10,569 | 18,400 | (18,167) | (b) | 10,802 | ||||
| Long-term debt, net of current portion | 938,140 | — | — | 938,140 | |||||
| Other long-term liabilities | 921 | 306 | — | 1,227 | |||||
| Total liabilities | 1,052,402 | 59,135 | (2,986) | 1,108,551 | |||||
| Commitments and contingencies | |||||||||
| Shareholders' equity: | |||||||||
| Common stock | 304 | — | — | 304 | |||||
| Additional paid-in-capital | 141,297 | — | — | 141,297 | |||||
| Treasury stock | — | — | — | — | |||||
| Retained earnings | 7,846 | 194,527 | (194,527) | (b) | 7,846 | ||||
| Accumulated other comprehensive loss | (1,888) | — | — | (1,888) | |||||
| Total shareholders'equity | 147,559 | 194,527 | (194,527) | 147,559 | |||||
| Total liabilities and shareholders' equity | $ | 1,199,961 | $ | 253,662 | $ | (197,513) | $ | 1,256,110 |
Unaudited Pro Forma Condensed Combined Statement of Income - Six Months Ended June 30, 2020
(in thousands, except share and per share amounts)
| Twin River | Acquired Companies | Pro forma Adjustments | Note 3 | Pro Forma Combined | |||||
|---|---|---|---|---|---|---|---|---|---|
| Revenues | $ | 138,072 | $ | 25,130 | $ | — | $ | 163,202 | |
| Operating costs and expenses: | |||||||||
| Gaming, racing, hotel and food and beverage, retail, entertainment and other | 58,712 | 10,493 | — | 69,205 | |||||
| Marketing and promotions | — | 1,144 | (1,144) | (c) | — | ||||
| Advertising, general and administrative | 73,598 | 9,068 | 1,144 | (c) | 82,018 | ||||
| (446) | (d) | ||||||||
| (1,178) | (e) | ||||||||
| (168) | (f) | ||||||||
| Management fee | — | 514 | (514) | (e) | — | ||||
| Acquisition, integration and restructuring | 4,244 | — | (863) | (f) | 3,381 | ||||
| Goodwill and asset impairment | 8,554 | — | — | 8,554 | |||||
| Gain on insurance recoveries | (1,026) | — | — | (1,026) | |||||
| Loss on disposal of property and equipment | — | — | — | — | |||||
| Depreciation and amortization of intangibles | 18,122 | 2,913 | 2 | (g) | 20,166 | ||||
| (871) | (h) | ||||||||
| Total operating costs and expenses | 162,204 | 24,132 | (4,038) | 182,298 | |||||
| (Loss) income from operations | (24,132) | 998 | 4,038 | (19,096) | |||||
| Other income (expense): | |||||||||
| Interest income | 255 | — | — | 255 | |||||
| Interest expense, net of amounts capitalized | (26,738) | (1,730) | 1,730 | (i) | (31,833) | ||||
| (5,095) | (j) | ||||||||
| Total other income (expense) | (26,483) | (1,730) | (3,365) | (31,578) | |||||
| (Loss) income before provision for income taxes | (50,615) | (732) | 673 | (50,674) | |||||
| (Benefit) provision for income taxes | (18,182) | 322 | (352) | (k) | (18,212) | ||||
| Net (loss) income | $ | (32,433) | $ | (1,054) | $ | 1,025 | $ | (32,462) | |
| Net loss per common share: | |||||||||
| Basic | $ | (1.05) | $ | (1.05) | |||||
| Diluted | $ | (1.05) | $ | (1.05) | |||||
| Weighted average common shares outstanding: | |||||||||
| Basic | 31,011 | 31,011 | |||||||
| Diluted | 31,011 | 31,011 |
Unaudited Pro Forma Condensed Combined Statement of Income - Year Ended December 31, 2019
(in thousands, except share and per share amounts)
| Twin River | Acquired Companies | Pro forma Adjustments | Note 3 | Pro Forma Combined | |||||
|---|---|---|---|---|---|---|---|---|---|
| Revenues | $ | 523,577 | $ | 83,815 | $ | — | $ | 607,392 | |
| Operating costs and expenses: | |||||||||
| Gaming, racing, hotel, food and beverage, retail, entertainment and other | 185,172 | 32,504 | — | 217,676 | |||||
| Marketing and promotions | — | 3,594 | (3,594) | (c) | — | ||||
| Advertising, general and administrative | 180,400 | 23,343 | 3,615 | (c) | 203,347 | ||||
| (891) | (d) | ||||||||
| (2,236) | (e) | ||||||||
| (884) | (f) | ||||||||
| Management fee | — | 1,774 | (1,774) | (e) | — | ||||
| Acquisition, integration and restructuring | 12,168 | — | (1,293) | (f) | 10,875 | ||||
| Gain on insurance recoveries | (1,181) | — | — | (1,181) | |||||
| Loss on disposal of property and equipment | — | 21 | (21) | (c) | — | ||||
| Depreciation and amortization of intangibles | 32,392 | 6,534 | 56 | (g) | 36,530 | ||||
| (2,452) | (h) | ||||||||
| Total operating costs and expenses | 408,951 | 67,770 | (9,474) | 467,247 | |||||
| Income from operations | 114,626 | 16,045 | 9,474 | 140,145 | |||||
| Other income (expense): | |||||||||
| Interest income | 1,904 | — | — | 1,904 | |||||
| Interest expense, net of amounts capitalized | (39,830) | (5,220) | 5,220 | (i) | (51,008) | ||||
| (11,178) | (j) | ||||||||
| Loss on extinguishment and modification of debt | (1,703) | — | — | (1,703) | |||||
| Other income | 183 | — | — | 183 | |||||
| Total other income (expense) | (39,446) | (5,220) | (5,958) | (50,624) | |||||
| Income before provision for income taxes | 75,180 | 10,825 | 3,516 | 89,521 | |||||
| Provision for income taxes | 20,050 | 3,024 | 800 | (k) | 23,874 | ||||
| Net income | $ | 55,130 | $ | 7,801 | $ | 2,716 | $ | 65,647 | |
| Net income per common share: | |||||||||
| Basic | $ | 1.46 | $ | 1.74 | |||||
| Diluted | $ | 1.46 | $ | 1.74 | |||||
| Weighted average common shares outstanding: | |||||||||
| Basic | 37,705 | 37,705 | |||||||
| Diluted | 37,820 | 37,820 |
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
Note 1 — Description of Transaction and Basis of Presentation
The unaudited pro forma condensed combined financial information was prepared in accordance with GAAP and pursuant to the rules and regulations of SEC Regulation S-X and presents the pro forma financial position and results of operations of the combined companies based upon the historical financial information of Twin River and the Acquired Companies.
Basis of Presentation
Twin River has concluded that the transaction represents a business combination pursuant to ASC 805. Twin River has completed a preliminary external valuation analysis of the fair market value of the Acquired Companies' assets acquired and liabilities assumed. Using the total consideration for the transaction of $230 million, Twin River has preliminarily allocated the purchase price to such assets and liabilities as of the acquisition date. This preliminary purchase price allocation has been used to prepare pro forma adjustments in the Pro Forma Statements. The final purchase price allocation will be determined when Twin River has completed the detailed valuations and other studies and necessary calculations. The final purchase price allocation could differ materially from the preliminary purchase price allocation. The final purchase price allocation may include changes in allocations to intangible assets or goodwill based on the results of certain valuations and other studies that have yet to be completed and other changes to assets and liabilities.
Items Not Adjusted in the Unaudited Pro Forma Condensed Combined Financial Information
Twin River anticipates that the Acquisition will result in increased revenue and operating income as a result of reinvestment in the properties and increased marketing spend. The Company expects to invest approximately $40 million of capital to reposition the IOC- Kansas City's property, in addition to increasing marketing spend to recapture market share at the Acquired Companies. No assurance can be made that Twin River will be able to achieve these revenue and operating income increases, will spend the estimated capital or when any amounts would be realized/incurred, and no such amounts have been reflected in the Pro Forma Statements.
Note 2 — Preliminary Purchase Price Allocation
The Acquisition, which closed on July 1, 2020, resulted in Twin River acquiring all of the outstanding equity securities of the Acquired Companies for an aggregate purchase price of $230 million in cash, subject to certain customary post-closing adjustments. In connection with the consummation of the Acquisition, the Company acquired the operations and real estate of the Acquired Companies.
Twin River has performed a preliminary valuation analysis of the fair market value of the Acquired Companies' assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date (in thousands):
| Preliminary as of July 1, 2020 | ||
|---|---|---|
| Cash | $ | 4,362 |
| Accounts receivable | 582 | |
| Inventory | 164 | |
| Prepaid expenses and other assets | 686 | |
| Property and equipment | 60,574 | |
| Right of use asset | 28,282 | |
| Intangibles | 138,560 | |
| Other assets | 117 | |
| Goodwill | 53,649 | |
| Accounts payable | (614) | |
| Accrued and other current liabilities | (3,907) | |
| Lease obligations | (51,842) | |
| Deferred income tax liabilities | (233) | |
| Other long-term liabilities | (306) | |
| Total purchase price^(1)^ | $ | 230,074 |
(1) Reflects preliminary post-closing net working capital adjustment of $0.1 million.
Under the acquisition method of accounting, the total purchase price is allocated to the acquired tangible and intangible assets and assumed liabilities of the Acquired Companies based on their estimated fair values as of the Acquisition closing date.
Note 3 — Pro forma adjustments
The pro forma adjustments are based on preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:
(a) Represents the reclassification of balance sheet accounts at the Acquired Companies to conform to the presentation used by Twin River.
(b) Represents the elimination of the Net parent investment at the Acquired Companies and the initial allocation of excess purchase price to identified intangibles, fair value adjustments and goodwill as of June 30, 2020 as follows (in thousands):
| Total consideration | $ | 230,000 |
|---|---|---|
| Net parent investment | (194,527) | |
| Write-down/(write-up) of assets: | ||
| Property and equipment, net | 8,338 | |
| Right of use assets | 9,143 | |
| Intangible assets | (45,610) | |
| Historical goodwill | 48,429 | |
| (Write-down)/write-up of liabilities: | ||
| Intercompany debt | — | |
| Lease obligations | 15,181 | |
| Deferred income taxes | (18,167) | |
| Goodwill | $ | 52,787 |
(c) Represents the reclassification of balances included in Marketing and promotions and Loss on disposal of property and equipment that Twin River includes in Advertising, general and administrative expenses.
(d) Represents the lease expense adjustment related to the change in right of use asset and lease liability for the Port City lease in place in Kansas City.
(e) Represents the elimination of management fees paid to Eldorado by the Acquired Companies included in Management fees, as well as certain corporate allocations included in Advertising, general and administrative expenses during the six months ended June 30, 2020 and the year ended December 31, 2019.
(f) Represents the elimination of transaction costs incurred by Twin River and certain Eldorado transaction costs included in Advertising, general and administrative expenses during the six months ended June 30, 2020 and the year ended December 31, 2019.
(g) Represents the amortization of intangible assets related to the acquisition of the Acquired Companies over a three- to ten-year period as if the acquisition occurred on January 1, 2019. The estimated useful lives were determined based on a review of the time period over which economic benefit is estimated to be generated as well as additional factors. Factors considered include contractual life, the period over which a majority of cash flow is expected to be generated or management’s view based on historical experience with similar assets.
(h) Represents the depreciation adjustment of acquired “property and equipment” resulting from the fair value adjustment of these assets relating to the Acquisition. Twin River estimated that the fair value of property and equipment was less than the Acquired Companies’ book value by $8.3 million. Therefore, depreciation expense would decrease by $0.9 million for the six months ended June 30, 2020 and $2.5 million for the year ended December 31, 2019 using the straight-line method of depreciation. The estimated remaining useful lives of acquired property and equipment range from 2 years to 40 years.
(i) Represents the reversal of interest expense on the intercompany loan on the books of the Acquired Companies during the six months ended June 30, 2020 and the year ended December 31, 2019.
(j) Represents additional interest expense for borrowings needed to finance the $230 million purchase price on the books of Twin River.
(k) Reflects the income tax effect of pro forma adjustments based on the estimated blended federal and state statutory tax rates of 35.9% and 26.7% for the six months ended June 30, 2020, and for the year ended December 31, 2019, respectively.